Birth of a Legend Commodore International Limited was founded in 1958
by Jack Tramiel, a typewriter repairman from the Bronx, New York. It received
much of its financing from Canada's Atlantic Acceptance Corporation and quickly
grew to include typewriter manufacturing. However, Atlantic went bankrupt in
1965, threatening to take Commodore with it. To save his company, Tramiel began
hunting for a new source of funds. He found it in Irving Gould, a Canadian venture
capitalist, who supplied the ailing company with $400,000 in exchange for 17%
of the company and Tramiel's pledge of all the receivables.
Price War and the Lean Years By the 1970's, Commodore Business Machines had
grown further, branching into calculators and other office machinery. Business
boomed until Commodore lost in a brutal price war with Texas Instruments. Commodore
had been assembling pocket calculators with TI microprocessors. The chips cost
Commodore about $50 per calculator, and the final product sold for about $100
each. In response, TI came out with a competing calculator of its own manufacture
using the same chip that sold for only $49. Commodore lost $4 million on sales
of $56 million and nearly sank. Tramiel learned a valuable lesson. In 1976,
Commodore bought MOS
technologies, a failing semiconductor manufacturer, for $800,000, ensuring that
it would no longer be dependent on outside vendors for needed parts.
Growth Under Tramiel's deliberate guidance, Commodore grew into a $1 billion company,
growing sevenfold from 1981 to 1984. It was one of the largest suppliers of home computers
in the world.
Commodore 64 Era By early 1982, Commodore
had five new products in development, one of them being the infamous Commodore 64.
Believing he had a winner, Tramiel took a gamble. He sidelined the other products and
built up massive inventories of the C64. Then, he flew in the face of the computer
industry by enlisting the same mass merchandisers (K-Mart, Toys "R" Us, Target,
and others) that sold the Vic-20 to market the C64. By doing so, he proved that computer
buyers didn't need to rely on the hand-holding of an elite class of computer-literate
salespeople and their specialty store prices. The C64 was rushed to market with haste
bordering on recklessness, and about 1/4 of the machines shipped didn't work. Commodore's
solution was a no-questions-asked policy on the exchange of defective machines. After
several months, the defect rate had been whittled down to a more acceptable 4-5%. By 1984,
about 4 million Commodore computers were in use around the world, and 300,000 more were
being sold per month.
However, Commodore's leadership believed that market saturation
was still a long way off, since only about 6% of U.S. households owned computers.
This was far less than the 20-25% that owned video game players during the peak
of the home video game craze.
Tramiel Leaves Tramiel had been known for his iron-fisted style of management.
He was involved with every aspect of the company and anything or anyone he didn't
like was changed or removed. This led to a class action suit in November of
1983, which charged that Commodore failed to disclose information about its
operations and did not build a strong management team. According to a statement
released in January of 1984, Tramiel said, "personal reasons prevent my
continuing on a full-time basis with Commodore." Gould recruited Marshall
F. Smith from Thyssen-Bornemisza NV, a conglomerate based in the Netherlands
Antilles, to replace Tramiel. At the time of Tramiel's departure, the home computer
market was failing, causing Mattel and Coleco to leave the business. Another
company that
decided to leave the industry was Warner Communications, which sold Atari to
the newly unemployed Tramiel for a pittance. Shortly thereafter, a stream of
Commodore executives followed him.
Smith In an effort to make Commodore profitable, Smith took to downsizing,
cutting the payroll by more than 45%. Though the company had an impressive $339 million in
1985 holiday revenues, it made only $1 million for the quarter after paying off about 1/4
of its bank debt. Commodore suffered through Fiscal Year 1985, losing $237 million, and
getting into trouble with its creditors. The banks granted a much- needed one-month
extension on Commodore's loans, and, with the success of the company's second-best
Christmas sales ever behind them, Commodore defied the Gods of Bankruptcy yet again.
The Rattigan Years In March 1986, Thomas J. Rattigan replaced Smith as Commodore's CEO.
Rattigan was hired in April of 1985 with the understanding that he would replace Smith,
who remained on as a director. Rattigan's objective during the first few months of his
leadership was clear - cut costs in order to stabilize Commodore's position, allowing it
to rebuild. Once again, the payroll was trimmed from top to bottom, and three plants were
closed in five months. New controls were added in the finance department to prevent the
sloppy reporting that had undermined Smith's leadership. Commodore continued to sell
respectable numbers of its $150 C64 throughout 1986. The Commodore 128, a successor to and
more powerful machine than the C64, was selling for $300 at the time, also helping to keep
the company afloat. Rattigan's policies worked. By March of 1987, Commodore had caught up
on its loans and posted a $22 million earning in the quarter ending December 1986. It also
had $46 million in the bank, the most cash since 1983, its most profitable year.
Amiga Commodore's next move was to release the Amiga line of home computers.
Code-named 'Lorraine' during development, Amiga was quickly dubbed the
"save-the-company machine." The Amiga was packed with computing power. At its
center was a Motorola 68000, the same chip that powered Apple's original Macintosh. The
Amiga had an additional set of three custom-designed chips, one to handle stereo sound,
one for graphics and one for animation. The Amiga was also one of the first computers to
mult -task, performing several different computing jobs at once - such as word processing
and game playing.
The Post-Rattigan Years On April 22, 1987, Rattigan was replaced by Chairman Irving Gould,
the venture capitalist who had been involved with Commodore for over 20 years. It is
unclear as to why Rattigan was replaced after turning the company around and posting $28
million in profits over the four quarters ending in March 1987. Rattigan himself claimed
that he was forced out by Chairman Gould due to personality conflicts and that Gould was
upset about Rattigan getting credit for the company's turnaround. Gould argued that the
comeback
in the U.S. was insufficient compared to its rebound in overseas markets, which accounted
for 70% of its sales. In fact, despite its profitability, Commodore's U.S. revenues had
declined by 54% in the same four quarters. According to Gould's ideology, the North
American operation was to be a sales and marketing extension of the company, rather than
the unwieldy, semi-independent entity it had become. For the third time in Commodore
history, a new leader began his term at the helm by drastically downsizing. Under Gould's
reign, the payroll was cut from 4,700 to 3,100, including half the North American
headquarters' corporate staff, and five plants were
closed.
Current On April 29, 1994, Commodore International announced that it had been
unable to renegotiate terms of its outstanding loans and was closing down the
business. The liquidation process lasted for months, owing largely to the far-reaching
size of the corporation. In addition, the fact that the company was incorporated
in the Bahamas while a large share of the creditors were from the United States
made legal proceeding tense and drawn out. On April 20, 1995, almost a full
year later, Commodore was sold to the German company ESCOM for approximately
10 to 12.5 million dollars. Now the amiga rights are owned by Gateway 2000
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Last Updated on 16 June 2000 | For suggestions please mail the editors |
Footnotes & References
| 1. | Taken from the Commodore 64 Project |