Datapoint Corporation History

Address:

8400 Datapoint Drive
San Antonio, TX 78229-8500
U.S.A.

Telephone: (210) 593-7000

Public Company
Incorporated: 1968 as Computer Terminal Corp.
Employees: 1,777
Sales: $208.3 million
Stock Exchanges: New York
SICs: 3571 Electronic Computers; 7372 Prepackaged Software

Company History:

Datapoint Corporation has a proud history as one of the most innovative American computer companies, and today, despite its weak reputation in the United States, it is the leading marketer of telephone-computer integration in Europe. Datapoint specializes in networking computers, and pioneered the local area network (LAN) and MINX, a device that integrated data, voice, and video communications. Datapoint was one of the first computer corporations to realize the importance of linking computer software to telecommunications, and some of the company's leading products are automatic call distributors for incoming calls, power dialers for outgoing calls, and other call management software. Datapoint produces a computer networking technology called ARCNET that is recognized as an industry standard. The company also owns significant patents in networked video products. Over 80 percent of Datapoint's sales are in Europe, and the company maintains a second headquarters in Paris.

Datapoint Corporation was created in 1968 by two engineers, Phil Ray and Gus Roche, who had acquired cutting-edge knowledge of computer technology through their work on various NASA projects. They both worked for General Dynamics' Dynatronic Division in Florida, which was assigned to assist the U.S. space program's goal of putting a man on the moon. Ray and Roche feared that once that goal was reached their engineering skills would be less in demand, and they determined to go into business for themselves before that happened. On the advice of one of Ray's former professors at the University of Texas, they decided to manufacture a generic computer terminal that could be hooked into a mainframe computer. At the time, mainframe computers were room-sized monstrosities, and a terminal that fed it data required a noisy teletype that printed tape. Roche and Ray designed a terminal that would have a television screen instead of a teletype, would be quiet, and could be plugged into any mainframe and immediately be on line.

After finding financial backers in the San Antonio area, the two engineers incorporated there in July 1968 as Computer Terminal Corporation. The new terminal depended on a silicon chip, which was just then being developed by Texas Instruments. An industrial designer in New York created an elegant, streamlined casing for the machine, and by January 1969 Computer Terminal Corp. had built three working prototypes. The new machine was named the Data Point 3300, with the number indicating an advance on the current popular model of teletype, the ASR 33. The initial chips proved problematic: they usually burnt out after only half an hour of use. However, the Data Point 3300 clearly struck a new direction in computer hardware. The machine was an immediate hit at that year's national computer show, and orders soon swamped the new company. As orders outpaced the company's production capabilities, some of the early models had to be put together in housings made by a San Antonio motorcycle helmet manufacturer; soon, however, Computer Terminal established mass production facilities. By August 1969, the fledgling company had raised more than $4 million in an initial public offering on the over-the-counter market. Less than a year later, the initial shares, which had sold for $8 a piece, were selling at $45 a share.

With the startling success of the Data Point 3300, Computer Terminal's engineers decided to make a more sophisticated product, a terminal that would have some of its own memory and processing power. To do this, they first had to design what later became the first computer microprocessor. Two of Computer Terminal's engineers, Victor D. Poor and Harry Pyle, got the inspiration for this new silicon chip over a Thanksgiving dinner, achieving the technical breakthrough that made the small size of personal computers possible. However, Computer Terminal was still a small young company, and at first it had great difficulty convincing any one established in the industry to try to manufacture the new chip. Eventually Intel agreed to work on the new chip, which became its enormously successful Intel 8080.

Computer Terminal Corp. used the new chip in its Data Point 2200 terminal. The 2200 had many problems and did not do all it was designed to do. Strangely enough, it also did more than any one thought it could. In 1971 Victor Poor, one of the 2200's inventors, went on a trip to an Alabama chicken ranch owned by Pillsbury, where the managers had invited him to see their terminal at work. Poor was not terribly interested in the machine, until he asked his hosts to what mainframe the terminal was hooked. The Pillsbury people told the engineer that the terminal worked by itself. Poor tried to explain that the 2200 required a computer modem and a telephone line connecting the terminal to a mainframe, but his hosts finally convinced him that theirs did not work that way.

Poor realized that he and his partners had unwittingly created the first personal computer and that Computer Terminal had a chance to lead the industry. Unfortunately, because no one at the company had the necessary skills to manage the finances of the growing company, money was already running out. Founders Roche and Ray considered selling the company and soon worked out a deal with a leading electronics firm, TRW Inc. However, after a TRW vice-president arranged the acquisition, the company's president balked, afraid that he would end up competing directly with IBM. Instead, TRW agreed to invest in Computer Terminal Corp. in exchange for exclusive rights to manufacture the company's products overseas. At the time, this deal seemed fine to Computer Terminal's owners, and TRW, along with several New York financial firms, gave Computer Terminal $7 million to develop a new product.

In spite of this large cash injection, Computer Terminal Corp. was still in financial trouble. The new investors had assigned someone to look over the company's books, and what they found did not please them. As a result, the company's first chairman, San Antonio insurance salesman Gerald Mazur, who had put together the company's first financing, resigned. Computer Terminal hired a new chairman, Harold O'Kelley, who had an engineering background and had been a vice-president of the electronics firm Harris Corp. He took over the firm, now renamed Datapoint Corporation, in 1973, and immediately set to work getting the company in order.

O'Kelley's first major step was to renegotiate the company's contract with TRW, which allowed them to manufacture Datapoint's products overseas. O'Kelley found the original agreement potentially devastating. If Datapoint's new terminal was successful, nothing could stop TRW from making it abroad and then importing it to the United States, forcing Datapoint to compete against itself. After protracted legal wrangling, O'Kelley signed a new agreement that let TRW have the overseas distribution of Datapoint products for ten years, without the manufacturing rights. O'Kelley's next accomplishment was to raise another $8 million for Datapoint on Wall Street. In 1973, Datapoint's sales were $18 million, and O'Kelley planned to raise that to $100 million in five years.

Harold O'Kelley had positioned Datapoint for years of astonishing growth. Between 1973 and 1981, revenues grew at close to 40 percent a year, and sometimes more. Sales surpassed the $100 million mark in 1977, and by 1981 were almost $450 million. The Datapoint 2200 Version II, which could operate without a mainframe, was only one of the company's many innovative products. A concept called Datashare let many terminals communicate with each other independent of a mainframe. In 1976, Datapoint introduced a machine that automatically routed outgoing telephone calls onto the cheapest available line. It introduced telephone directory software and word processing programs, as well as electronic mail functions. Its Attached Resource Computer (ARC), introduced in 1977, was the first of what became known in the industry as LAN (Local Area Network), which the major computer companies, such as Xerox, IBM, and Wang, soon imitated. All the different Datapoint technologies could be linked together, each single piece was relatively inexpensive, and the company provided free software, with frequent updates. Once a customer bought one piece of the Datapoint line, it was easy to sell more. Datapoint's vision was the Integrated Electronic Office, an "office of the future" where typewriters, filing cabinets, telephones, and mailroom would all be replaced with electronic devices that could be operated from a single terminal. By 1981, Datapoint was estimated to control 21 percent of the distributed data processing industry.

During these growth years, Datapoint had attracted large institutional investors, such as union pension funds and mutual funds, and, by 1980, these made up at least 50 percent of the company's stockholders. Wall Street analysts generally predicted great things for the company, flagging Datapoint as a leader in the computer industry. The stock rose to a high of $67.50 a share in 1981, and in early 1982 it sold close to $50. Chairman O'Kelley worried that the stock price was actually too high and that analysts were projecting earnings for the company without taking into account enough factors. When the stock market began to slow in early 1982, the computer industry as a whole found business conditions worsening. Datapoint had had record earnings of 66 cents a share for its 1981 fourth quarter; earnings declined to 54 cents a share in the next quarter. When the company announced in February 1982 that its second quarter earnings would be only slightly better, the stock market reacted with panic. Large investors dropped the stock. Nearly 2 million shares were traded in two days, and in ten days, the stock had lost a third of its value.

The stock sank even deeper, and by May the stock that had been close to $50 in February was trading at $13. Datapoint announced that it would no longer make revenue and earnings forecasts, thinking that it had already said too much, but investors interpreted this to mean that more poor earnings were on the way. The poor business climate led Datapoint to lay off workers, further spooking Wall Street, and, in April 1982, the company announced its first loss after 39 consecutive quarters of gains. Some of the loss the company attributed to a reversal of $15 million worth of sales from prior quarters. The company had apparently been overstating its sales by reporting shaky orders as done deals, a practice said to be widespread in the industry; however, outraged shareholders threatened lawsuits. Fiscal 1982 ended with sales of $508 million, a slight increase over 1981, but profits had dropped to a bare $2.4 million, down from $48.7 million only a year earlier.

Flagging customer confidence, shaken by Datapoint's drastic plunge in earnings, added to the company's difficulty in recovering from the crisis of 1982. Harold O'Kelley vowed to concentrate on selling Datapoint's minicomputers and to let the "office of the future" go. The company sold its Communications Management Products Division in 1983, shedding itself of its promising PBX telephone system, because further technical development of the system was too expensive. However, the breadth of its products had been one of Datapoint's strongest selling points; the company had difficulty competing with its bigger rivals without it.

Datapoint limped along with small profits until more bad news hit the company. With its stock still selling at under $20, the company became the target of a buy-out. New York investor Asher B. Edelman announced in December 1984 that he had bought up 8 percent of the company, and his share soon increased to more than 10 percent. Edelman had already bought out three other companies, only to dismantle and liquidate them for a profit. When Edelman disclosed that he was interested in Datapoint, other investors began buying up the stock, hoping to cash in. Datapoint's customers began to fear that the company would not be around much longer, making them less likely to buy their products. January 1985 saw Datapoint's second quarterly loss since the 1982 debacle. By March, Edelman had gained control of the company through a proxy fight, Harold O'Kelley resigned, and various divisions of Datapoint were up for sale.

However, Asher Edelman soon announced that the company would not be liquidated. Incredulous investors felt misled, but Edelman insisted that Datapoint had many viable products and that the company would soon be profitable again. He spun off Datapoint's service division, but the rest of the company remained. However, Edelman's new leadership was not enough to turn the company around, leading him to appoint Doris Bencsik president in 1987. She undertook an expensive scaleback of the company that led to a slight improvement in the overall financial picture, but Datapoint was still far from what it had been. The company put out some new products and increased its advertising and trade show attendance, and in 1988 it had its first profitable year since 1984. Nevertheless, revenues were not impressive, and profits were eaten up in dividends paid to preferred shareholders.

In 1989, Datapoint was the target of another buy-out, when investor Martin Ackerman tried to wrest control of the company away from Asher Edelman. Ackerman bought close to 5 percent of Datapoint's stock, then launched a proxy fight, accusing Edelman of mismanaging the company. Ackerman failed to replace Edelman on the board, however, after Edelman upped his share in Datapoint to almost 40 percent. However, the fight cost the company, not only in legal fees but also in further customer uncertainty. Datapoint lost $13 million in the quarter Ackerman's bid surfaced, as sales declined by almost a third.

Troubles continued at Datapoint. The company lost $29.2 million in 1989. In 1990, a federal court of appeals reversed an earlier decision in a patent infringement suit brought against Datapoint by Northern Telecom Inc., resulting in $82.8 million in losses that year. Datapoint closed its U.S. sales division and opened headquarters in Paris, because by that time at least 80 percent of the company's sales were in Europe. In 1992, Datapoint premiered an enhanced version of one of its leading products, the ARCnet Plus, a computer networking system. This introduction promised better sales, especially in Europe. However, Datapoint continued in the red. The final settlement of the patent suit with Northern Telecom in 1992 left Datapoint liable for a $7.5 million cash payment, with additional payments contingent on profitability over the next ten years.

Datapoint had significant patents of its own in video conferencing technology, which, in 1993, it sued to protect. The company believed it had a strong future in video networking technology, since it was a natural extension of its other computer networking product lines. Despite its fallen reputation in the American market, Datapoint was a market leader in telephone-computer integration in Europe. In 1993, Datapoint entered into agreements with several other computer companies to distribute new computerized telephone equipment worldwide or in Europe.

A 1987 survey by Computerworld magazine had found that only five Wall Street analysts were following Datapoint, and those the magazine reached disavowed any interest in the company. Those quoted claimed that the company was no longer a force in the computer industry, and that once Edelman had taken over, Datapoint was only of interest to arbitrageurs. Edelman's reputation as a corporate raider hurt Datapoint substantially, and the second takeover attempt in 1990 only increased the doubt of Datapoint's customers that the company would continue to be around to serve them. However, in spite of Datapoint's long slide, the company was still coming out with new products in the mid-1990s. A core business of computer networking systems was still in place, though mostly in Europe. Though Datapoint in the mid-1990s was a far cry from its former prominence and was still plagued with troubles, it continued to fight for a position in the industry.

Datapoint Corporation History

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