Things are rather worse at Prime Computer Inc than the company was letting on ahead of its first quarter figures last week (CI No 1,673). The company now says that while the ratio of cash flow to its cash interest requirements remains healthy enough at 2.6 to one to enable it to meet all the […]
Things are rather worse at Prime Computer Inc than the company was letting on ahead of its first quarter figures last week (CI No 1,673). The company now says that while the ratio of cash flow to its cash interest requirements remains healthy enough at 2.6 to one to enable it to meet all the interest payments on its $1,240m long-term debt easily, it says it is probable that later this year it will be in breach of the covenants on some of its bank debt and has begun discussions to renegotiate the covenants. The company – strictly speaking DR Holdings Inc, the J H Whitney & Co vehicle formed to buy Prime and take it private, but to all intents and purposes Prime itself, reported that its loss in the first quarter widened dramatically to $84.4m from last year’s $37.2m loss for the first quarter. And turnover slumped 8.1% to $339.7m as product sales fell precipitously by 17%, and service business saw a marginal increase. Within that, US product sales fell by 12.7% and international sales did even worse, falling 19%. The rug has been pulled out from under Prime’s proprietary 50 Series minis where sales plunged 37%; even Computervision, where increases were intended to offset a gradual fall in minicomputer sales, saw business off 6.6%. The product mix also switched to cheaper systems with lower margins and away from software, and Prime has had to discount in foreign markets. Desperate measures include, as reported, another 9.2% reduction in its workforce – 800 positions are to go this year – and four weeks’ mandatory holiday for all employees, fully paid only for those with four weeks or more of accumulated leave entitlement; those that have already used up their vacation time will not be paid for the time off. Prime’s biggest problem now is that in an era of open systems, customers are able to buy exactly what they want from the strongest vendor in the market: the MIPS Computer Systems Inc machines that are the company’s new mainstay are available from a whole string of vendors. Prime can count on users continuing to buy from Computervision to the extent that they want its software because that business is sufficiently valuable that there should be a buyer for it whatever befall its parent. But in order to stem the attrition of leery customers that follows every negative financial report, the only viable answer is for Whitney to find a strong buyer for Prime.