What shortcircuited Wang Labs' growth?

The silent manufacturing plant in Boston's Chinatown says more than charts or statistics about the plight of Wang Laboratories. An Wang, the founder, chairman, and once again president of the computer company, had planned for the $10 million plant to begin assembling computer parts last spring. By 1987, he hoped, it would employ some 300 people, many of them from the surrounding Chinese community.

Chinatown is of special interest to Dr. Wang -- known universally as ``the Doctor'' -- who came from Shanghai to the United States in 1945 and then proceeded to change the face of the offices and secretarial pools across the country. His name was to word processing what Kleenex is to facial tissue.

But the machinery in the Chinatown plant is idle. A dozen or two salespeople toil quietly. And when the plant opens next month, only about 25 people will be working there.

The culprit, in large part, is the computer slump, which has hit Wang Labs harder than other computer stars on Boston's Route 128.

``I'm sure that as the marketplace changes, [our hiring plans for the Chinatown plant] will change back up,'' Frederick Wang, a son of the Doctor (and thought by many to be heir apparent as head of the $2.3 billion computer manufacturer), said in a recent interview.

Wang has trimmed back its corporate growth goals as well. ``We don't have to compare ourselves with IBM one for one,'' said Dr. Wang in an interview. ``IBM is 20 times bigger. If we can just [increase our share], we are ahead.''

Wang's recent problems, and its opportunities, go beyond the sterile numbers of the marketplace. The troubles come in part from being slow to recognize the lightning-fast changes that have shocked the computer industry, changes symbolized by -- but not limited to -- the birth of a personal computer by IBM.

Part of the problem, too, stems from Wang's past successes: a dizzying growth rate of 41 percent a year for the last decade; the consequent overstaffing of middle and upper management (now trimmed, but not enough, according to some analysts); a collapse of its profitable ``cash cow,'' the clusters of word-processing machines; product delays and servicing snafus that annoy customers who once had nowhere else to go but now find the open arms of Big Blue.

All the rumblings converged into a thunderclap last summer. In June, Wang announced it was laying off 1,600 employees. In the quarter ending June 30, the company lost $109 million, the first loss in its history. In July, Wang's president, John F. Cunningham, announced he was leaving to run a small computer company. This brought the Doctor back in charge of day-to-day operations. Less than two months later, Jon F. Kropper, an executive vice-president and one of Wang's four top officials, sai d he was leaving to head up a computer circuit-board manufacturer. (There appears to be no connection with Mr. Cunningham's departure.)

Such events are unnerving to employees, stockholders, and customers. But Wang remains optimistic.

``One of the great things about this business is that once a year you finish your fiscal year and you're able to push this great big red reset button,'' says J. Carl Masi, senior vice-president in charge of worldwide marketing. ``We did that in July, and we're very enthusiastic and optimistic.''

While lacking the same exuberance in his voice, John McCarthy, a former Wang employee and research manager at Forrester Research, a high-tech market analysis and consulting firm, says that the $109 million loss was probably not indicative of future earnings.

``They knew they'd have a loss in the fourth quarter, so they decided to bite the bullet,'' he says, and write off $137 million worth of inventory, lay off 1,600 people, ``and have a strong rebound.''

While Wang is certainly not out of the woods, no one interviewed for this article would come close to predicting its demise.

``You can't help but be optimistic about Wang,'' says Douglas Gold, senior analyst for office automation services at International Data Corporation. ``Wang won't be down for the count. If they do go down, it will take 10 to 15 years, simply because it has the largest word-processing base in the world.'' There are some 300,000 Wang users, many of them fiercely loyal, sitting at word-processing terminals today.

Wang has already begun cleaning up its house on costs. Aside from shedding some 1,800 people, either through attrition or layoffs, the company is freezing all salaries through January, cutting the top 15 executives' salaries by 10 percent, and eliminating layers of middle management under a reorganization that has put international and domestic sales and six different marketing organizations under Mr. Masi.

Wang has also started a number of programs to improve servicing, which tends to suffer under spiraling growth. There is a toll-free number dealers and customers can call when they have problems with Wang products. Wang takes customer suggestions about its products and incorporates them into revised products. And for the first time, Wang is training consultants to help customers figure out their needs before a sale -- an area IBM wins in, hands down.

A big wrinkle that needs immediate ironing is the management team, analysts say. ``Wang's management is very thin,'' says Patricia B. Seybold, editor of the Seybold Report on Office Systems and a close Wang-watcher.

One of the most popular guessing games among computer-watchers these days is how long Dr. Wang will stay at the helm, and who will replace him. Wang himself is noncommittal: ``I will try to manage as long as I'm useful,'' he said in a recent interview.

The speculation is that he will run the company for 18 months to two years. Then, Ms. Seybold predicts, ``John Masi is the obvious shoo-in for president'' if he continues his strong performance in helping the Doctor run the company. Masi could be an interim president, she adds, while Fred Wang is being groomed. Mr. Wang's role as head of research and development has been expanded to include manufacturing and treasurer.

Many others, including Mr. McCarthy, think ``Wang will bring in someone from outside.''

Employee morale also needs some attention. Rumors of another 5 percent (1,550-member) layoff are running through the company.

``I wouldn't be surprised if I came in tomorrow and found I didn't have a job, and I wouldn't be surprised if they never had another layoff,'' says one employee, who notes that a lot of workers have left on their own over the summer. ``I've got my r'esum'e done, but I'm not going to jump from the frying pan into the fire.''

McCarthy says the company could still afford to trim middle management by another 1,000 people. But because of strong July and August sales, he doubts it will. Wang denies it will have more layoffs.

Wang knows that just cutting costs is not enough, and has already faced some hard questions in strategy.

The first thing the company would like to do is change its image from a producer of word-processing products to one that makes data-processing products. The company points out that more than half of its fiscal 1985 revenues came from data processing.

That point is key for two reasons: (1) It is the data-processing people, not the departmental managers, who are making the computer purchases these days; (2) businesses want to transfer not only text, but data and voice, from one computer to another.

In 1982, only 40 percent of office automation purchases were made by data-processing managers, who tended to go with IBM; the office managers (Wang's customers) had the power of the purse. But with the explosion of office automation and the enormous amounts of money spent on it, says Nicholas Pagon, an analyst at the Butcher & Singer securities firm, the purchasing decisions were handed back to the management-informaton-systems and data-processing managers. Now this group buys about 75 percent of all co mputers.

``The major problem is not Wang's products; it's got good hardware,'' Mr. Pagon says. ``Wang's lines of distribution are no longer working.''

As businesses demanded more of their office computers, the clustered-word-processing market, which has been Wang's mainstay, went into ``massive decay,'' says Mr. Gold at IDC. Between 1982 and '88, he forecasts, shipments of stand-alone and clustered word processing will fall by 28 percent a year.

Wang realized too late that stand-alone personal computers were eating into its profitable word-processing clusters and kept its system proprietary. After IBM came out with its Personal Computer, the name of the game was IBM compatibility, or at the very least, open architecture (so that programmers could write software for the computer hardware). Wang paid dearly for its stubbornness.

In July, Wang announced three new products: Wang word-processing software that runs on IBM personal computers (for all those people who teethed on Wang but then got IBMs); its new Advanced Professional Computer, which will run nearly all programs that run on the IBM XT; and a circuit board that can modify IBM personal computers to let them work with Wang VS minicomputers.

This represents a strategic shift for Wang. ``They've finally realized there are 31/2 million IBMs or IBM-compatibles out there, and you can't just ask your customers to throw away their IBMs,'' says Lewis Lorini, a reporter at Micromarket World.

``The PC battle is lost,'' says McCarthy at Forrester. ``The battle for the next three years is at the midrange level.'' By allowing the IBM machines to ``talk'' with the Wang VS minicomputer, he says, ``Wang has decided to give away its PCs to sell its VS.'' That's a smart move, he says, since the minicomputers have higher profit margins and a faster-growing market.

Fred Wang denies the company is sacrificing its micros for its minis. He notes that the life of a personal computer is a maximum of three years, and that by getting the VS in now, a year or two down the road it will start getting the work-station side of the business.

The VS and a new software product, Wang Office, is crucial to getting a big share in integrated office systems. ``Everyone wants to be there,'' says Gold, who expects annual growth to clip along at 55 percent in shipments and 77 percent a year in installed base through 1988.

Wang was a late entrant in this market: It began shipping Wang Office software in January (eight months late), so it has a tiny market share. DEC and Data General are the big players, but, says Gold, ``Wang is a force to be reckoned with.''

What customers want, says McCarthy at Forrester, is not to buy more hardware, but to integrate the equipment they already have. That means having the ability, for example, to let a Wang personal computer transfer data to a DEC minicomputer or an IBM mainframe. Last week Wang announced several products that analysts think are a good first step toward that kind of ability.

Wang is also putting a lot of emphasis on the financial, banking, insurance, and legal industries, where word processing is vital. Since these use a lot of data as well as words, it is a natural way for Wang to change its image and to move into other markets such as computer-aided design. Seybold sees a need for Wang to diversify, but she thinks it is straying a bit with the more technical products.

``We've never jumped radically into something different,'' says Fred Wang. ``We've either jumped into a new marketplace with a product that we knew, or with technology that we knew, or we moved into an additional marketplace, that is, a growth of a marketplace we are already in.''

Wang has got a pretty tall order: diversifying products, controlling growth, being quicker at assessing and meeting customer needs. But those who watch Wang closely are optimistic, if for no other reason than the Doctor's steady hand at the helm.

``The trick is '86,'' says McCarthy. ``If they rebound, come through on their new products, they'll make their goal of $20 billion by 1994.'' GRAPH: REVENUES CLIMB, EARNINGS PLUMMET $2,000 $1,000 $200 $100 '75 '85 '75 '85 Revenues in millions of dollars Earnings in millions of dollars Source: Wang Laboratories