Is it the end of the line for Amstrad?

A 30-year dream appears to be about to end for one of the UK’s most flamboyant chairmen. Alan Sugar, the man who introduced PCs to a mass market through Amstrad, is ready to sell the company to Psion in a deal worth at least 230m.

It will net Sugar an estimated 80m but could bring down the curtain on a key brand name of the Eighties. Psion, the personal organiser manufacturer, has yet to decide what it will do with the Amstrad brand but many observers believe it will not survive the trauma of the deal.

It is always possible that the sale will not go through but City investors and industry insiders think Psion’s offer will get the green light (MW June 28). Only jittery Psion shareholders or a change of heart from the fiery Sugar could derail the deal now, and few think either is likely.

But, if it goes through, the question on everybody’s lips is what will become of the brand which was founded in Hackney in 1968? Amstrad is in a position that is both enviable and unenviable. It is known throughout the country but has become a byword for low-end, simple and ugly electronics. In effect, Amstrad stands for everything Sony is not.

When news of the deal leaked out, both the City and the industry thought Psion chairman and chief executive David Potter would quickly kill the Amstrad name. The received wisdom was that he was only after the research capabilities at the larger company’s disposal to make new products. It was believed Amstrad’s name suffered from such bad associations that it was unsalvageable.

Industry observers had every right to think so. In the fevered atmosphere as the deal became public, Potter himself said: “We are not buying Amstrad as perceived by its brand and name. Amstrad is in ashes. We are buying the Phoenix.”

However, the market is now more sceptical of Potter’s zero option, and is beginning to take a more benevolent view of Amstrad. After all, this was the first company to give PCs to the masses in the Eighties, and in the Nineties it still makes everything from electronic beauty massagers to mobile phones.

After combined losses of 40m in 1993 and 1994 the company briefly returned to profit last year – on sales totalling 271m – although it again announced interim losses of 5.4m in the six months to the end of December.

One industry observer close to Sugar says: “Psion has a more valuable asset than it might realise and it should treat it accordingly. People might get sniffy about the Amstrad name but it still sells. I don’t think Psion will get rid of the brand because although the image of the brand is low, it is still acceptable.”

This observer sees Amstrad continuing at the cheaper end of the PC market. At the same time, Psion will, as many agree, use its target’s technological base to integrate mobile-phone functions, voice and data services and access the Internet and e-mail from its core pocket-sized computer products.

An advertising source who has worked with Sugar agrees that a twin-track strategy for the two businesses is likely.

“I can see things developing the way Tesco promotes its own-brand products,” he says. “The Amstrad line will be slimmed down and sold cheaper, but will still offer basic quality. The Psion line will be sold at a premium and will offer greater choice and specifications.”

But there are some who maintain that Amstrad will be allowed to wither and die. These are mainly in the City where Sugar has few friends, especially after his failed bid to buy back the company from investors in 1992.

Some in the Square Mile think Psion is only interested in the profitable companies under Amstrad’s wing – direct-sales PC manufacturer Viglen and mobile phone maker Dancall, which it bought in 1994. Analysts believe the consumer electronics division, which has performed badly in recent years, will either be sold or will assume the Psion name.

One analyst even thought Psion might axe the names of the profitable parts of the business. Explaining his logic he says: “Lucent Technologies, the AT&T-owned mobile phone company in the US, has made phones with only the operator’s name on them. And it has proved very successful.

“It gives the operator access to cheap, high-quality equipment and it gives the manufacturer a high-profile entry into a competitive market. The same thing has just started to happen in Italy, and this could be a model that Psion may wish to use for Dancall.”

One of the few areas of agreement is that the merged company should not indulge in creating a completely new company or brand name. “Launching a new brand means paying high costs – either because you’re having to start with a heavy price cut or you’re spending a great deal on promotions,” says one source.

The thing both companies have in common is that neither is noted for extensive use of advertising. Their reputations have been built through products, rather than brand marketing. But the industry says the merged company will have to address this issue as a priority once the deal is completed.

“The first problem the new company will face is identity. It will be sizeable and it will have two distinct strands, in terms of quality, to its business. It will have to decide exactly how to position itself,” says one source, summing up the wider feeling of the industry.

Not surprisingly for a company with such a small reliance on advertising, Psion is not thinking that far ahead. It runs two six-week national press campaigns a year through The Progress Agency at a cost of a few hundred thousand pounds. Psion says it has no plans for marketing the enlarged company.

But Psion would do well to start thinking about how it will market Amstrad without Sugar. As more than one observer points out, Sugar is a colourful chairman worth millions of pounds in free publicity.

But his days of thunder are numbered, at least in the electronics world. Associates say he became increasingly frustrated after he was blocked from buying back Amstrad four years ago. His chairmanship of Tottenham Hotspur Football Club gives him the chance to be in complete control of a company. His 34 per cent stake in Amstrad does not. He wants all or nothing.

When Sugar leaves to spend more time with football players, the White Hart Lane board will have to prepare for a full-time, tough-talking chairman with money in his pocket and time on his hands.