Adios, Amiga?

By Gordon M. Henry.

Only three years ago, Commodore International of West Chester, Pa., was the hottest name in a hot game: home-computer sales. Its Commodore 64 was the Volkswagen of computers, a low-cost, dependable model that became the best- selling machine in the business. The company's earnings reached a record $144 million in its fiscal year 1984.

But when home-computer sales started to fizzle in late 1984, Commodore quickly began to lose its sizzle. Last week the company reported that it lost $53.2 million in the fourth quarter of 1985. That brought its total losses since June of 1984 to $206 million. During this grim period Commodore has piled up debts of $250 million, and it is now negotiating with creditors to postpone a Feb. 28 deadline for loan repayments.

At Commodore headquarters, though, hopes still run high. Chief Executive Marshall Smith, 56, is convinced that his new, technologically impressive Amiga computer will become a winner and that the banks will give the company enough time to make a turnaround. Wall Street speculates that Commodore may be working on a deal to raise cash through a merger or joint venture with another firm.

On the surface, Commodore's troubles seem to have started with the abrupt departure in January 1984 of President Jack Tramiel, who resigned after a dispute with Chairman Irving Gould and later became head of Atari, a rival home-computer maker. A savvy salesman and cutthroat competitor, Tramiel made Commodore a huge success by bringing out quality products at rock-bottom prices. But Tramiel bears some of the responsibility for Commodore's recent slide. He focused on sales and skimped on research and development of new models.

Since he took over after Tramiel's exit, Smith has been scrambling in vain to bring out a successful follow-up to the Commodore 64. One candidate that flopped was the Plus-4. Unveiled in the summer of 1984, it was more powerful and versatile than the Commodore 64, but it did not run the same programs as its predecessor. Owners of the 64 who might have upgraded to the Plus-4 were reluctant to do so because they would have had to buy entirely new software libraries.

Smith may have made a company-saving move when he bought Amiga Corp., a small computer firm in Santa Clara, Calif., for $25 million in October of 1984. Technology obtained in that acquisition helped Commodore develop its Amiga model, which has drawn praise from industry experts. Among Amiga's attractive features are its state-of-the-art color graphics and its ability to run more than one program at the same time.

Despite the machine's dazzle, however, Amiga sales are off to a slow start. Commodore has been selling computers through such department stores as K mart and Sears. But that strategy has alienated computer-store owners, many of whom refuse to stock the Amiga. Says Drew Clausen, who owns nine Computerland stores in Los Angeles: "Once you open your product to mass merchandisers, then you're not selling computers. You're selling toasters." Commodore is also having trouble finding a market niche for the Amiga. Business customers are unenthusiastic because it is not compatible with the IBM machines that are common in offices. Shoppers looking for a home computer are discouraged by the Amiga's price: $1,795 with a color monitor.

Commodore's creditors will probably give the Amiga a fair chance before trying to force the company into bankruptcy. Says Computer Expert Raimund Wasner of the Yankee Group, a Boston-based research firm: "Commodore is worth more alive than dead." But the patient's pulse is growing weak.

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With reporting by William Hackman/Los Angeles and Thomas McCarroll/New York