Mattel Electronics. David H. Ahl.
As a toy company, Mattel has an enviable history. First there was the Barbie doll. Then Hot Wheels. Then Intellivision. Intellivision?
Sure, Intellivision. When it was first introduced in 1979, retailers ate up the systems. As a result, profits, except in 1981, climbed steadily.
Ironically, Mattel never intended to get into the hardware business. The original plan was to design games to run on video game systems that would be manufactured by someone else. Mattel wanted to make the blades, not the razors. But the toy maker failed to convince its would-be partners to make the hardware, so Mattel finally decided to go it along.
The first Intellivision system was wellreceived. It had better resolution than the competing Atari VCS and a comprehensive lineup of games. Had it not been for the horrible controller, the system might have done even better. Nevertheless, retailers fought for Intellivision systems at a wholesale price of more than $200 when Mattel could have sold the systems for $100.
Flushed with their success, Mattel announced a keyboard unit to turn the basic Intellivision system into a computer. The original announced price in 1980 for the keyboard unit was $700. It was test marketed in four cities and didn't do well for several reasons. First, Intellivision systems were mainly being sold through department stores and mass merchandisers, neither of which was prepared to demonstrate a computer, particularly in 1980. Second, the price, although in line with other computers at the time, was a big jump up from the typical $269 price of the basic game system. Third, and most damaging, the keyboard units were unreliable.
Over the next 18 months, Mattel redesigned and re-announced the keyboard unit at three successive Consumer Electronics Shows. But none of these reincarnations ever got past the test marketing stage.
Although the keyboard unit never got off the ground, Mattel Electronics was doing very well. The contribution to corporate profits from the electronics division jumped from 10% to 51% in just two years.
In 1982, Mattel went on a hiring binge, and the electronics division, by now practically a separate company, swelled from about 100 employees to more than 1000 in a little over a year.
The new employees were set to work designing a sleek, new Intellivision III system; a low-priced computer, the Aquarius; and games for competitors' systems (Atari, Coleco, and various computers).
The results of these efforts were first shown at the Winter Consumer Electronics Show in January 1983. Intellivision III was shown to selected dealers and employees (we reported that it had a resolution of 320 X 192 pixels, up to 64 moving objects, and built-in stereo sound, and could be easily converted to a computer). Unfortunately, it was only a prototype, and dealers had to settle for the existing Intellivision II.
Unfortunately also, the Aquarius Computer was not up to the same standards. With a rubberized Chiclet keyboard, no spacebar, and just 4K of memory, it was unrealistically priced at $200 retail. It was too little, and too late.
Many of the games for systems of other manufacturers were good, but they were introduced at exactly the time the video games industry started into the doldrums.
From Boom To Bust
Aquarius was finally rolled out in April in four cities--Chicago, Detroit, Los Angeles, and Atlanta--at an average street price of $150. Even so, that was $50 or so above competing units such as the Vic 20 and TI 99/4A, and sales were sluggish. (By November the street price has dropped to around $59, realistic in view of the capabilities of the product and the competition.) Intellivision II was also under fire from the standpoint of pricing.
Starting in July, the announcements from Mattel Electronics started taking a more ominous tone. In early July, 260 employees were laid off. A month later, 400 more employees were dropped, making the total reduction some 37% of the division. Moreover, the top management of the division was dismissed.
A few weeks later on August 22, Mattel slashed the wholesale price of the Intellivision II system from $149 to $89 and offered a free cartridge with every system. In addition, they reportedly offered a free voice synthesizer to some retailers.
The layoffs and price reductions were bad news, but the financial news was a disaster. Sales in the financial news was a 1983 were $3.5 million compared to $24.9 million in the like period a year earlier.
In early September, the company announced a loss from the electronics division of $166.7 million in the first six months of 1983. In December, the loss for the first nine months was reported as $229.3 million, or 25% more than the total operating income for the division over the past four years.
Moreover, the corporate loss brought on by the electronics division forced Mattel to omit the regular quarterly common dividend scheduled for November.
Aggravating the problems, both Moody's and Standard and Poor's lowered their ratings on Mattel convertible debentures, thus making it more costly for Mattel to raise equity capital in the future.
Where To Now?
There is no absence of speculation on the next step. The doomsayers have Mattel leaving electronics altogether. Some industry executives think this would be the best course as it would result in a slimmed down, but profitable toy company.
On the other hand, a company spokesman points out that Mattel still maintains a large staff of software development people and that Mattel Electronics "clearly' has a future.
Either way, Mattel will never be the same again. But perhaps this misadventure is more consistent with CEO Arthur S. Spear's approach to running the company that it might seem. After all, in the past decade, in the name of diversification, Mattel has bought, and then sold, a circus, ice shows, a pet supply manufacturer, and a movie-production business. Even today, it is trying to sell a publisher of children's books it bought just three years ago. Anyone for an electronics company?
Photo: From the Mattel report to shareholders issued in the fall of 1983.