Comdisco Trying to Stay Afloat

 
 
By John Mulqueen  |  Posted 2001-05-14 Email Print this article Print
 
 
 
 
 
 
 

Trying to wrest itself from under heavy debt and high business expenses, Comdisco last week said it will slash about 250 jobs, around 10 percent of its work force, and will record a one-time charge of $6 million to $8 million in the third quarter.

Trying to wrest itself from under heavy debt and high business expenses, Comdisco last week said it will slash about 250 jobs, around 10 percent of its work force, and will record a one-time charge of $6 million to $8 million in the third quarter.

The nearly dry bones of once powerful Comdisco stand as warning to any company considering a headlong rush into a business it thinks it knows, and to nontelecoms looking to try their hand at Internet Protocol services.

From the day Ken Pontikes founded Comdisco in 1969, it had a reputation as a hard-driving company. Over the next three decades, it built its revenue to more than $3 billion on leasing IBM mainframes.

Nicholas Pontikes eventually took the helm from his father and the company decided to sell its mainframe leasing operations and a medical equipment leasing unit, and move into higher-growth businesses such as operating a data carrier, providing managed services and aggressive venture capital investing.

But everything fell apart in 2000. Nicholas Pontikes is gone. The carrier, Prism Communications Services, was shut down last fall at a cost of $350 million, and managed networks are being abandoned. A tracking stock IPO for Comdisco Ventures that would have paid off some of its more than $1 billion debt to the parent company was pulled in February, leaving Comdisco itself strapped for cash.

Norman Blake was hired as chairman, president and CEO in February, and has, in turn, hired The Goldman Sachs Group and McKinsey & Co. to examine alternatives for the company.

Last weeks layoffs, half in the companys Rosemont., Ill., headquarters, were the first phase in a two-year plan expected to save the company about $145 million annually.

Even before the company announced a second-quarter loss of $54 million and said revenue had declined to $940 million, Richard Earnest was hoping to see Comdisco sold. "I got the shares at a pretty good price, but we have had them for a long time," says Earnest, portfolio manager at HighMark Funds, one of the companys largest shareholders.

No Dividends

Comdisco also suspended its quarterly dividend and said it would terminate its network-consulting business and transfer its network management services.

Despite the seemingly bright promise of its Web hosting division, a company spokesman confirmed that the fate of this, and all other units, depends on the outcome of an internal overview process now under way.

In its earnings report, Comdisco said conditions in the telecommunications equipment market forced it to write down the Prism assets it is trying to sell by $30 million. It also wrote off $100 million in loans made by Comdisco Ventures and set aside $206 million in additional reserves to cover potential credit losses.

Comdisco Ventures dates back to 1987 but went into high gear in 1999 and 2000. In 1998, it made direct equity investments in 38 companies. In 1999 and 2000, it invested in 90 companies and 200 companies, respectively. Revenue and profits grew rapidly, but debt to the parent company also ballooned. The debt has been pared back to about $710 million, but Comdisco Ventures staff, about 50 people last fall, has been trimmed by 15 percent.

Comdiscos shares reached a high of $57 in early 2000, driven upward by Prism and the venture capital business that looked so promising two years ago. By the middle of last week, the shares were hovering near $2.

Prism had agreed to buy $460 million worth of switches, cards, customer premises equipment and other gear from Nortel Networks, which invested $10 million in the carrier.

 
 
 
 
 
 
 
 
 
 
 

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