PerfectData Bounces Back : Comebacks: Cost-cutting saves the Simi Valley maker of cleaning products for computers. The firm plans to expand by making and selling modems.
In 1986, when Lee Mannheimer became CEO of PerfectData Corp., he had a huge office with plush carpeting, private bath and floor-to-ceiling windows. He also had a dying company on his hands.
That year, PerfectData lost $4.5 million on sales of $5.5 million, mostly because the Simi Valley company--a leading maker of cleaning products for computers--tried to broaden its business by making floppy disks. The company’s stock, which three years earlier had been $8.50 a share, was down to 75.
“I was on a Queen Mary that was sinking,” said the 49-year-old executive.
Today, Mannheimer sits in a cramped, windowless office. It is an example of the sort of cuts that he has made to help the company return to profitability. In its fiscal year that ended March 31, PerfectData earned $669,000 on revenue of $7.8 million. Both are record amounts for the 16-year-old company.
But PerfectData’s stock has never recovered; it is languishing at about $1.25 a share. The problems of the mid-1980s “put a psychological cloud over the company,” said Ed Bernstein, a mutual fund manager based in Los Angeles.
PerfectData’s new challenge, though, is how to solve the problem of its limited market. The company’s main products are cleaning supplies for business and personal computers, but Mannheimer thinks the worldwide market for such accessories is just $50 million. Only about 1% of the nation’s personal computer owners ever clean their machines, Mannheimer said, “And we don’t have the wherewithal to educate the public.”
Mannheimer thinks he has found the answer in making and selling computer modems that, he argues, are easier to plug in and use than others in the market.
He hopes that modems will enable PerfectData to rely less on computer-cleaning equipment, which now accounts for 75% of the company’s sales. “We see modems as one of the new products to bring us into the 21st Century,” he said.
Modems enable people to send data from one computer to another by telephone line, and as more people work out of their homes, Mannheimer is betting that the U. S. modem market will grow. But last year, manufacturers sold $860 million worth of modems, down from $1 billion in 1990, according to Dataquest, a high-tech research firm in San Jose.
PerfectData began its modem venture last June when it bought the assets of Anchor Automation, a 10-year-old modem maker, for $250,000. Since then, Mannheimer said PerfectData has spent $300,000 to develop and get its modems ready.
David Powers, PerfectData’s product manager, thinks the company’s line of internal and external modems, called EasyModem, will succeed because they come with a videotape and manuals that purportedly make them easier to hook up and use than others on the market. The modem industry has emphasized developing more powerful modems, Powers argued, but few are trying to make them easy to use.
Major U. S. modem manufacturers disagree.
Alan Bach, product manager at Hayes Microcomputer Products in Atlanta, one of the world’s leading modem manufacturers, declined to comment about PerfectData. But he said, “Our modems are consumer friendly. And that’s something we continue to strive for.”
“Just a good product isn’t going to be enough,” said Frank Manning, the CEO of Zoom Telephonics Inc., a Boston-based modem manufacturer that last year had sales of $26 million. PerfectData is “going to have to offer something dramatically better.”
Other analysts said that while the U. S. modem market is likely to grow--noting that only about 15% of the computer owners currently own modems--competition could force prices to come down even more. And that could put pressure on small-volume operators.
Jonathan Lax, president of Marketing Audit, a research firm in Philadelphia that has studied the modem market, said PerfectData has a good distribution system to start with. But given the competition, he said, “PerfectData will have to do its homework and focus on a niche.”
Of course, the last time PerfectData tried to get into a new business, it failed miserably. In that venture, which began in 1983 with a $1.6-million investment, PerfectData tried to market floppy disks that it made jointly with Polaroid.
But PerfectData, which had been an original equipment manufacturer since its founding in 1976, had trouble selling the computer data-storage devices because it lacked a distribution channel. At the same time, the world markets became flooded with floppy disks, and that drove down prices and made PerfectData’s disks non-competitive.
In 1987, PerfectData bailed out of that business, but not before it lost $6.8 million, most of that for writing off unsalable inventory.
PerfectData, however, appears to be a different company today.
Mannheimer, who came to PerfectData in November, 1986, after 10 years with Vivitar Corp. managing new products and distribution, has cut the work force by one third, to 38 people. In 1987 the company moved out of its 23,000-square-foot building in Chatsworth to one half that size in Simi Valley.
Mannheimer also got rid of company cars and expensive offices in Europe that were not being used.
“He really tightened the belt strings,” said Irene Marino, PerfectData’s chief financial officer. Consequently, at the end of its fiscal year on March 31, PerfectData had no outstanding debt, cash of $1.1 million and working capital of $3.4 million, according to documents filed with the Securities and Exchange Commission.
Since 1986, PerfectData has also built up a distribution channel that includes Sam’s Wholesale Club, a 220-store warehouse chain owned by Wal-Mart Stores, and other large office and computer retailers. PerfectData has used this network to launch new products, such as computer covers, office footrests and a line of copyholders, or boards attached next to computer screens that are used to hold paper.
But those products did not require as big an investment as does the company’s new line of computer modems.
PerfectData at a Glance PerfectData Corp. is a Simi Valley company that sells a broad line of computer care and office cleaning products. Founded in 1976, the company lost %6.8 million between 1984 and 1988, largely because it got into the computer floppy disk market at a time when world markets for the product were flooded. Since then, however, PerfectData has made a comeback. It posted record revenue and profit in its last fiscal year.
