WANG LABORATORIES, INC. History

Company History:

Wang Laboratories, Inc. is a worldwide provider of computer-based office information processing systems including data, text, image and voice processing systems, as well as networking products. Wang's business activities also include consulting, support, and training services in addition to customer services which help businesses reengineer offices to improve productivity and quality. In 1992, despite $1.9 billion in sales, Wang posted a net loss of $139 million and began operating under the protection of Chapter 11 of the United States Bankruptcy Code.

Wang Laboratories traces its origins to the early 1950s when An Wang started an unincorporated research development company to provide services in the areas of specialized electronics and digital equipment. Originally An Wang had no plans to develop and build computers. He had left his native China in 1945 to study applied physics at Harvard University, where he earned his doctorate in 1948. After graduation Wang performed postdoctoral work at Harvard's Computational Laboratory, where he invented the magnetic pulse memory core which was to become a standard component of computers during the next 20 years. In 1951 Harvard announced that it was suspending computer research, and Wang left the university. With no contracts and no orders, he started Wang Laboratories later that year, operating with only $600 in capital. The company's early focus was the development of specialized electronic and digital equipment which would utilize Wang's magnetic core.

Wang Laboratories initially sold magnetic cores and provided contractual services to perform research and development. An Wang was his own salesperson and frequently attended electronic trade shows, attempting to drum up business. In 1952 Wang secured a contract to custom design a synchronizer and counting device for a Cambridge, Massachusetts, company called Laboratory for Electronics. Also during this time, An Wang offered IBM a license on his pending patent of the magnetic memory core. This began four years of negotiations on a patent sale. Meanwhile, Wang had been contracted by IBM to devise a method for using magnetic cores to perform memory functions for IBM's electronic calculating machine. Wang was awarded a patent on the core just weeks after it was sold to IBM in 1956. Years later, An Wang suggested that IBM had encouraged a challenge to the patent claim in order to hasten a sale.

When Wang Laboratories incorporated in 1955, An Wang was registered as president and treasurer. Following the patent sale to IBM, the company's focus gradually began to shift from consulting to development and sales of its own products. The transition ultimately proved fruitful, but the mid-1950s were also a time that An Wang later admitted was fraught with business mistakes.

In the late 1950s Wang was busy with a number of government contracts, an area Wang Laboratories still serves despite product strategy transitions. In the course of fulfilling one such contract with the United States Air Force, the company developed an angular encoder to measure cloud cover. This technological breakthrough in the application of transistors spurred the advance of Wang's encoders and also aided in the development of automated control systems for companies producing and using machine tool makers.

By the late l950s Wang Laboratories was marketing various types of control units sold under the brand name Weditrol (Wang Electronic Digital Control Units). In the last two years of the decade the fledgling company of about 20 employees produced 60 to 80 of those units annually and sold them for about $700 each.

Needing funds for expansion, Wang entered into an agreement in 1959 with Warner & Swasey Company, a machine tools company based in Cleveland, Ohio, that was purchasing Wang's control systems. An Wang forfeited 25 percent of the company's holdings to Warner & Swasey in return for a $50,000 equity investment and another $100,000 to be made available for short-term loans. 'I regretted the alliance almost at once,' Wang later wrote, noting he had given up too much control for too small a price.

During this period Wang also lost the exclusive right to manufacture a semi-automated hyphenating phototypesetting machine it had developed. In the late 1950s Wang agreed to design and build the machine for Compugraphic. The product was cheaper than fully automated systems already on the market. At the time the only phototypesetters able to justify text were extremely expensive, costing upwards of $1 million. Wang's hyphenating process could greatly increase the productivity of newspapers, such as those served by Compugraphic's equipment. The finished product was dubbed Linasec, and Wang Laboratories received about $30,000 for each machine Compugraphic sold. Even though Wang retained the patent on the Linasec, Compugraphic retained the right to manufacture the machines without making royalty payments.

In the early l960s Wang explored a new direction, developing its own sales organization to sell products directly to users. To accommodate the growth of the company, operations moved first to Natick, and then Tewksbury, Massachusetts. The first truly successful year for the Linasec machine was 1963, when the company recorded $300,000 in sales. Linasec revenues more than doubled in the next two years, allowing Wang in fiscal 1964 to exceed $1 million in sales for the first time.

Wang's greatest success of the decade concerned the creation of its landmark LOCI and 300 series programmable calculators. The LOCI debuted in 1965 and was the company's first electronic scientific calculator. It also spurred the creation of the desk calculator market, where Wang held almost sole proprietorship for much of the late l960s.

While Wang dominated the new desktop calculator market, the company again found itself in need of capital for further expansion and repayment of short-term loans. In 1967 Wang went public and sold 210,000 shares of common stock through the New York Stock Exchange. The company was by then a well-known leader in the electronic desktop calculator field. The stock offering shared top billing in the media along with President Lyndon Johnson's proposed tax increase in July 1967. That year Wang established its presence overseas and ultimately located sales, service, and administrative offices in Europe and Asia, as well as in the United States and Canada.

Foreseeing competition in the calculator market, Wang made its first attempt to build a computer in 1967. The computer was inadequate, largely a result of Wang's minimal programming experience. The following year the company acquired that experience when it purchased Phillip Hawkins, of Arlington, Massachusetts, at that time the state's largest supplier of data-processing services.

While some of Phillip Hawkins's staff left the company shortly after the $7.4 million purchase, the deal did bring Wang the programming experience needed to build computers. In 1970 the company announced it would enter the computer market with the 3300 model. This model also had drawbacks, and it was not until the introduction of the 2200--Wang's fourth computer--that the company successfully penetrated the minicomputer market.

An Wang still held control of the company he founded, and despite internal disagreements, the company decided to gradually begin withdrawing some of its less developed and lower priced calculators from the market in order to prepare for a total withdrawal from the calculator market. Nevertheless, Wang's success in the calculator market continued while the company developed its first computers. In 1969 Wang posted a 40 percent sales increase over the previous year and had more than 1,000 employees. In 1970, the huge success of calculators helped the company record its first year of $25 million in sales.

The period between 1970 and 1975 was a time of wordprocessing and computer product introductions, but it was also a period of unstable earnings. Wang introduced into the word processing market the 1200 BASIC, an electronically controlled dual-cassette typing system dependent on an IBM typewriter's internal workings to serve as a terminal. Performance problems with the 1200 arose during its first year on the market, and Wang saw its first quarter of declining revenues in 1973.

This situation worsened with the oil crisis in 1973. The year before, various packages sold to automobile dealers had accounted for 70 percent of Wang's business. When the bottom dropped out of the automotive sales market, Wang also suffered greater losses. In 1975 the company periodically took out bank loans, reduced salaries, and, for the first time, laid off workers.

The following year, however, the company made an impressive turnaround, with growth stimulated by sales of Wang's new computer systems. Then, in 1976, the introduction of a cathode ray tube (CRT)-based wordprocessing minicomputer finally gave Wang a significant corporate presence and propelled the company into the office-computer market.

Wang strengthened its marketing efforts during this time and launched a three-month television advertising campaign in 1978, portraying Wang as David and IBM as Goliath. Wang, then the 32nd largest computer maker, was second only to IBM in television advertising.

By the end of 1978 Wang claimed to be the largest worldwide supplier of CRT-based wordprocessing systems and the largest supplier of small business computers in North America. Beginning in 1978, Wang also began increasing its assets through a number of acquisitions, including a partial purchase of InteCom Inc. in 1984 that was completed two years later. Other acquisitions included the 1978 purchase of Graphic Systems and the 1988 purchase of Informatics Legal Systems. Later minority interest purchases included U.S. Satellite Systems, in 1982, and Telenova, in 1985.

Between 1979 and 1984 Wang's revenues skyrocketed 61 percent annually. Meanwhile, the company made a further commitment to the development of word processing and data processing products, increasing its research and development budget from $3 million in 1976 to $160 million in 1984. During this growth surge, Wang also broke into the Fortune 500 market, and by 1983 nearly half of company revenues were generated by Fortune 500 customers.

This eight-year period, the longest running period of consistent financial growth in Wang's history, was also marked by continual developments in improved product lines. Later products took direct aim at IBM's large portion of computer market revenues. Wang's VS (virtual storage) computers were introduced in 1977, its Office Information Systems series was introduced in 1979, and its Integrated Information Systems line was introduced in 1980.

Wang continued to cut into IBM's market share in the 1980s. In 1980 a word processor designed to compete with an IBM model was introduced. The battle was enhanced by a price reduction in 1981. That same year Wang introduced office machines that transmit voice as well as data. The following year a Wang personal computer debuted, taking aim at IBM's dominance in that market. By 1984 Wang was committing itself to marketing products that allowed its computers to be compatible with IBM software and PCs.

Ten years after Wang left calculators for computers, a computer-market recession hit, sending profit margins into a nose dive. After reaching $1 billion in sales in 1982, and $2 billion in sales in 1984, sales plummeted in the third quarter of 1985, with Wang posting its first decline in ten years. Wang responded to a net income falloff of 66 percent by announcing a layoff of 1,600 (five percent) of its workers, and pay cuts for executives.

Wang's attempts to penetrate IBM's market in the 1980s often resulted in costly setbacks. Critics suggested that Wang had been too slow to respond to the growth of personal computers, clinging to its once-heralded minicomputers of the late l970s, which by the late 1980s were being pushed aside by the smaller and sometimes more powerful personal computers. The company also had a poorly regarded service division, which failed to keep pace with sales and development.

In 1983 John F. Cunningham was named president of Wang, while An Wang remained chairperson and chief executive. Cunningham had been at Wang since 1967 and made his mark promoting office automation. But beginning in the mid 1980s, Wang had begun to lose its high-growth momentum, with rapid technological advances resulting in new personal computers and more powerful workstations that cut into the market for Wang's minicomputers. Consequently, the company underwent a number of organizational changes spurring the resignations of top-level management. In July 1985, amid news of sharply declining revenues, Cunningham resigned. Cunningham later said his resignation was precipitated by a suggestion from An Wang that the founder had chosen his son, Fred Wang, as the future leader of the company. Following Cunningham out the door was Executive Vice President Jon A. Kropper.

After Cunningham's resignation, An Wang briefly reassumed the duties of president and quickly became more visible in company operations. During a reorganization of the company's marketing division in the spring of 1986, Wang's top marketing executive, J. Carl Masi, Jr., resigned and, like Kropper and Cunningham, went on to head a smaller computer firm. Later that year Fred Wang, then serving as treasurer, was named president. Under Fred Wang profits fluctuated, with the company earning modest profits in 1986 only to lose $70 million during his first full year in 1987, despite the introduction of Wang's Integrated Imaging Systems which would eventually be highly regarded in the industry. In 1988, company losses grew to $92 million.

By the end of the company's 1989 fiscal year in June, Wang was posting an annual loss of $424 million, and the company's cash flow troubles had reached a point of crisis. While most computer companies funded their growth by issuing stock, An Wang had chosen to use debt, thereby avoiding further dilution of family control of the company. By August 1989 that debt had squeezed the company and caused a series of conflicts from its bankers. Under mounting pressure from creditors to reverse the company's downward earnings plunge, in August 1989 An Wang removed his son as president and named Richard W. Miller, the former head of General Electric Company's consumer electronic business, to replace Fred Wang, who remained a company director. Miller, who inherited over $1 billion of debt including $575 million in bank loans, quickly announced plans to overhaul Wang by cutting layers of executive bureaucracy, selling off nonstrategic assets and pushing Wang into budding markets it had ignored.

In December 1989 Miller announced a sweeping change in Wang's product strategy which would embrace established software standards in an attempt to broaden the company's markets. Marking a fundamental shift from Wang's traditional focus on proprietary-designed computers, the new strategy emphasized the compatibility of its personal computers within the industry as well as larger business computers based on the standard version of UNIX software. The company also announced it would continue its proprietary VS minicomputer line, adapting the older products to its new strategy.

Wang began 1990 by laying off 2,000 employees, the first in a string of massive personnel cuts. The company also entered the new decade having sold, under Miller's direction, over $200 million in assets including leasing, real estate and overseas manufacturing subsidiaries.

In March 1990 An Wang died, and Miller was named to the additional posts of chairperson and chief executive. By the end of its 1990 fiscal year, Wang had also sold its financial information business and eliminated a total of $600 million in nonessential businesses, reduced its bank debt to $30 million, and cropped $455 million off of its annual expenses. Despite 1990 sales of $2.5 billion, the company closed its books for the year reporting a record net loss of $715.9 million, with over half of that loss attributed to restructuring and special charges stemming from discontinued operations.

By the end of August 1990 Wang had completely eliminated its bank debt, won the biggest contract in its history--a U.S. State Department contract worth a potential $841.3 million--and sold InteCom Inc., its premier manufacturer of integrated voice-data switching equipment. In September Wang appeared to have turned things around, and posted its first profit in seven quarters. In line with its new product strategy, Wang introduced two personal computers in November that ran on the industry-standard UNIX operating system. But a continued weakening in the computer market resulted in second and third quarter losses in fiscal 1991, and Wang announced additional layoffs, reducing its workforce to 18,000.

In March 1991 Wang introduced its Office 2000 marketing strategy, aimed at developing products which would provide the company with potential for future growth. The strategy involved the company's well-received imaging software, capable of turning paper documents into electronic pictures, and other software and consulting services aimed at improving white-collar productivity.

In June 1991 Wang reached an agreement with IBM to resell computers made by its former rival. Wang agreed to sell IBM personal computers and IBM's RS/6000 workstations, which Wang would equip (under a Wang label) with its imaging and office productivity software, and sell IBM's proprietary AS/400 line of computers under IBM's label while designing software systems making it easy for Wang's VS line customers to convert to IBM's AS/400 line. In turn, IBM agreed to invest $25 million in Wang's operations which could be converted to a three to four percent stake in Wang's Class B stock, with an option to invest an additional $75 million.

The alliance with IBM resulted in a further refinement of Wang's product strategy, with the company adopting its present focus of developing office automation and document software for its business and governmental clients. Although Wang announced it would continue designing, marketing, and servicing its line of proprietary midrange computers, under its refocused plan a larger percent of Wang's development and sales efforts were directed toward IBM hardware and industry-standard systems.

In the wake of the newly-forged pact with IBM, Wang announced plans to reduce its work force in July 1991 by an additional 3,000, cutting the number of employees to less than 15,000. Miller also restructured the company into three divisions: information systems, designed to serve Wang's existing customer base and to sell both Wang's VS lines and new IBM products equipped with Wang software; personal computer systems, a new departure for the company, aimed at selling PCs through mass merchandisers; and Office 2000 systems, to guide Wang's future growth by improving its document management software and expanding on its imaging technology.

For fiscal 1991 Wang posted its third straight annual loss of $385 million, on sales of $2.09 billion. In August 1991 the company announced it would market a series of Wang personal computers through Service Merchandise Company's general merchandise catalogs and 350 stores. That same month the company won a major patent suit against two Japanese semiconductor makers, NEC Corp. and Toshiba Corp., expected to be worth $8 to $12 million annually. In the judgement, a federal jury upheld Wang's patents for single inline memory modules (SIMMs) that offer a method of placing memory chips in personal computers compatible with IBM products. Following the victory, Wang began licensing SIMMs to other computer manufacturers.

In December 1991 Wang sold its network service operations, which had been a major part of Wang Information Service Corp, a wholly owned subsidiary and provider of data communications networks for businesses and government agencies. The following month the electronic mail portion of the subsidiary was sold.

Wang entered 1992 having posted two consecutive quarters of narrowed losses, marking the first time in two years Wang's revenue had increased from a preceding quarter. During the first half of 1992 Wang introduced several new products reflecting its refocused business strategy. Its voice-mail 'servers' for voice mail networks, designed to work with Wang's communications, imaging, and computing applications, put Wang in a position to compete in the stand-alone and integrated voice systems market. The company also introduced its new Alliance series of personal computers for home and home-office use, signing Wal Mart Stores Inc. to carry the models. For Wang's older customers, a new VS minicomputer was introduced that provided 50 percent more power than its previous top-of-the-line proprietary models. Wang also introduced document imaging software, UNIX OPEN/image, designed to run on a wide variety of office systems, including Wang RISC Series systems running AIX, Wang VS, IBM CICS and IMS/DC, DEC VAX/VMS, Microsoft Windows, and on Digital Equipment Corporation's computers.

On the heels of a 1992 fiscal year loss of $139 million, Wang filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code in August 1992. Under Chapter 11, the company was allowed to continue operating under the supervision of bankruptcy court, while financial obligations at the time of filing--including about $500,000 of debt--were deferred until the company should emerge from Chapter 11. 'This is a drastic step that I deeply regret,' said Miller at the time of the announcement, 'but it is one that is absolutely crucial to our company's survival.'

Whether Wang succeeds in its turnaround efforts depends largely on how customers react to its Office 2000 strategy and related software. If successful, the strategy will help Wang to reinvent itself as a software and services company with a mission of revolutionizing the way offices work. As it endeavors to emerge from Chapter 11, Wang hopes to build on its established leadership position in creating the paperless electronic office by focusing on continued development of advanced software products and systems that streamline and accelerate the flow of work and the sharing of information through open computer systems networks that can accommodate numerous vendors' hardware, including Wang's own systems.

Although An Wang's family controls about 37 percent of the company and three family members serve as directors, Wang's operations are largely out of family hands. In announcing Wang's decision to file for Chapter 11 protection, Miller said he envisions a company that will emerge from Chapter 11 as a smaller, more focused and more competitive company, with revenues of about $1.4 billion and about 8,000 employees, down from 13,000 at the time of Wang's filing for bankruptcy.

Principal Subsidiaries: Wang Informatics Legal and Professional Systems, Inc.; Wang Information Services Corp.

Further Reading:

• Williams, Gary, 'Wang's Turnaround Specialist Prepares For Surgery,' Business Week, December 11, 1989.
• Cohen, Daniel, 'The Fall of The House of Wang,' Business Month, February, 1990.
• McWilliams, Gary, "Mini' Solution, Maxi Risk for Wang,' Business Week, July 1, 1991.
• Rifkin, Glenn, 'Wang Strives To Get on Feet,' The New York Times, April 8, 1992.
• Kenney, Charles C., Riding the Runaway Horse: The Rise and Decline of Wang Laboratories, Little, Brown and Company, 1992.

Source: International Directory of Company Histories, Vol. 6. St. James Press, 1992.

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