These are not the best of times for Commodore International.
The billion-dollar-a-year home computer company -- maker of the best-selling Commodore 64 -- has been pummeled in the marketplace. Commodore stock that once touched 39 5/8 in the past year now languishes around 13 a share. Earnings per share during the past Christmas quarter plunged more than 90 percent from $1.62 in the 1983 period to a dime.
Sales remain sluggish, and that spark of excitement that people once had for home computers seems to have vanished.
Sort of remind you of Atari and the video games story?
I'm not ready yet to say that home computers are just a fad. But it is certainly fair to observe that Commodore is both a cause and a symptom of the problems in the industry today.
Under Jack Tramiel's leadership, Commodore built itself up to billion-dollar stature by turning out VIC 20s and Commodore 64s at the cheapest prices going. For millions of families, the home computer suddenly became an impulse buy.
While this approach initially garners volume sales -- and it certainly made Commodore into the giant it is today -- it raises the immortal question that neither Commodore, Apple, Atari nor IBM can answer about home computers: "What the heck can you do with them?"
Because it overwhelmingly depends on the consumer market, Commodore has the most at stake in successfully answering that question. Indeed, just how well Commodore copes with it will determine whether home computers are merely visitors or really an integral part of the family. That means Commodore has to drastically change itself as a home computer company.
It has new management (Jack Tramiel, of course, has gone off to try and breathe life into Atari), but it remains to be seen whether new management means new ideas and new approaches to turning around Commodore's stagnant situation.
The company really has three main options available if it wants to stage a financial comeback and recapture both sales and profits.
The first is the easiest and the likeliest but also the most dangerous. Commodore can simply go on being the low-priced home-computer company while producing new -- and improved -- home computers. The company already has announced the C-128 -- an upgraded version of the C-64 -- and the LCD, a lap-compatible portable machine primarily intended for business users. Commodore is beginning to move into the business computer market against IBM and Apple. Good luck.
The company also shelled out $25 million to acquire Amiga -- a hot little Silicon Valley start-up that manufactures a Macintosh-type machine on the cheap. Commodore plans to offer this Mac-alike before the year ends and, despite some technical glitches, it promises to be a nifty machine for the money.
While this stream of new hardware is interesting and provocative, it neatly avoids answering the fundamental question of what you do with it. New hardware doesn't necessarily mean new utility. Commodore has to address that problem.
In the past, Commodore has relied on software companies to make the hardware useful. Unfortunately, none of the companies have managed to come up with the kind of software that provided a satisfactory answer for why computers are needed or desirable in the home.
That leads to Commodore's second option: It can aggressively explore software. Commodore already is a leading software supplier, but to be frank, most of it is pretty dull. Moreover, the software market is such a mess that sales and profitability are hard to predict. Still, don't be surprised if Commodore begins to strike deals -- maybe even acquisitions -- of companies that do interesting things with software trying to answer the fundamental question. That software emphasis will be a crucial change in Commodore's traditional hardware manufacturing and marketing emphasis.
The third option, though, is the one I'm betting on. Thanks to modems, home computers can communicate. It's no secret that network services like Compuserve and The Source generate a lot of interest and use. Commodore already has an arrangement with Compuserve.
Why is telecommunications so important? It gives Commodore the best of both worlds. On one hand, it lets Commodore do what it does best -- manufacture and sell hardware. On the other hand, it adds value to the existing base of Commodore computers. All of a sudden, those computers in the closet can be hooked up to a network to play games, pen messages, retrieve information and perform other electronic network activities.
Don't ignore how many banks are using home computers for home banking services. Expect Commodore to try to strike deals with banks to make Commodore machines a standard of home banking terminals.
This obviously leads to the expectation that Commodore will either build or acquire a computer network company by the end of this year, because there is a sense of urgency for Commodore to transform itself into a more versatile company that earns money from more than just hardware.
It's still far too early to say whether Commodore can move effectively in these areas and whether the market is prepared to deal with the idea of networked home computers. However, unless Commodore explores all three of these options, its future growth as a company will be severely constrained. Hardware isn't enough any more. Unless the home computer industry recognizes this, it has no real future either. And home computers will follow video games as a passing high-tech fancy.