Nixdorf Computer AG

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Nixdorf Computer AG

Furstenalle 7
D-4790 Paderborn
Federal Republic of Germany
(05251) 150
Fax: (05251) 15-1105

Wholly Owned Subsidiary of Siemens AG
Incorporated: 1952 as Labor für Impulstechnik
Employees: 28,000
Sales: DM5.26 billion (US$3.11 billion)

For much of the postwar era Nixdorf Computer epitomized the Wirtschaftswunder, Germany’s extraordinary recovery from the devastation of war. From its headquarters in the provincial town of Paderborn, Nixdorf built a worldwide reputation for quality and innovation in the field of small- and medium-sized computers, becoming a source of considerable pride in a country still suffering from the war’s physical and psychological wounds. In the year following the death of Heinz Nixdorf, the charismatic founder and owner of the corporation, Nixdorf was honored as 1987’s “most admired German company.” After a decade of more than 20% annual sales growth, profit in that year reached an all-time high of DM264 million and there was talk of Nixdorf eventually challenging the world’s computer leaders.

All the more shocking, therefore, were the events of the following 18 months, during which short time Nixdorf profits dwindled and then disappeared in a sea of red ink. By late 1989 the erstwhile pride of Germany was headed for bankruptcy, a victim of one of the sudden storms that periodically lash the international computer industry. Nixdorf family members and their powerful allies at Deutsche Bank insisted that the corporation remain in German hands, and in early 1990 the industrial giant Siemens gathered up the remains of Nixdorf for about $350 million. Heinz Nixdorf’s miraculous creation remained Nixdorf in name alone, but Germany as a whole maintained control of one of its symbols of economic strength.

Heinz Nixdorf was born in Paderborn in 1925, the son of a railway clerk. After service in the Luftwaffe at the end of World War II, he enrolled at Frankfurt University to study physics and business but left before taking a degree. With a small amount of borrowed capital, Nixdorf founded his own company, the Labor für Impulstechnik, in a basement workshop in Essen in 1952. He devised and built a calculator using radio tubes and sold it to West Germany’s largest electrical utility, the Rheinische Westfalische Elektrizitatswerke. Word spread of Nixdorf’s innovative machines, and Impulstechnik began supplying some of Europe’s leading electrical manufacturers with products they later sold under their own names. Chief among these customers were Groupe Bull of France and Wanderer Werke in West Germany.

When the former was bought out by General Electric in 1964 the resulting drop in Nixdorf sales taught its founder an important lesson. Henceforth his company would not rely on such unpredictable relationships with industrial giants; it would manufacture and sell its own equipment. Nixdorf developed a line of calculators and billing machines superior to those it supplied to Wanderer and quickly proceeded to outsell its own best customer. Nixdorf soon simplified matters by buying out Wanderer—considered a remarkable coup for a 15-year-old company. Nixdorf thus acquired extensive production facilities and a widespread sales force, with which it set about revolutionizing the use of computers in small businesses and banking.

In the mid-1960s few people yet envisaged any but IBM’s theory of computer utilization, in which ever-larger central processing units handled a growing amount of corporate data from a single location. Heinz Nixdorf recognized that most companies did not need more computational muscle; they needed to put such tools to work efficiently. To do so, they required two elements IBM was not particularly interested in supplying—small, versatile computers and a sales force willing to tailor such machines to the specific needs of each customer. This strategy was not only generally sound but also addressed the realities of the West German economy, whose companies tended to be smaller, family-owned concerns not capable of IBM-style investments but still in need of computing efficiency. For these users Nixdorf brought out its 820 general-purpose minicomputer in 1968, adding both the sales force and software needed to adapt such a machine to the daily needs of each small-business client. As a result of this campaign, Nixdorf sales rose from DM28 million in 1966 to DM263 million four years later, beginning the pattern of explosive growth that did not end until the debacle of 1989.

During the 1970s Nixdorf continued to defy conventional wisdom by exploiting the niche it had uncovered. The company’s first international sale provided the Swedish banking industry with 1,000 terminals for its various branch locations, and by 1972 Nixdorf had opened sales and manufacturing centers in 21 other countries as well. The most important foreign target was the United States, but Nixdorf met with only limited success in the U.S. market. In 1969 it bought the electronic division of Victor Comptometer, a U.S. manufacturer of office equipment, and in 1977 it added the Massachusetts-based Entrex, Inc., but at no time was Nixdorf able to gain more than 1% of the U.S. market. It was not that the company seemed in need of additional sales. By 1978 Nixdorf had passed the DM1 billion mark and employed some 10,000 people around the world.

Heinz Nixdorf and his family still owned 100% of the company stock, which some observers felt gave Nixdorf a decided advantage over its main German competitor, Siemens, a multi-billion-mark conglomerate unable to keep up with the rapidly changing computer world. While such a concentration of ownership offered more flexibility and the ability to move quickly, it also limited the company’s capital base, however, and in 1978 Nixdorf dallied with a number of suitors eager to buy up large chunks of the corporation. But the entrepreneur refused to relinquish control, instead making a conditional sale of 25% of his stock to long-time ally Deutsche Bank in 1979.

In addition to its traditional strength in small businesses and banking, Nixdorf expanded in 1974 to provide information services for the retail sector. Nixdorf’s retail involvement primarily involved point-of-sale equipment, an area in which the company became one of the European leaders. The fourth leg of Nixdorf’s marketing platform was in place by 1982, when its new telecommunications division created Germany’s first digital telephone switching system. Heinz Nixdorf predicted that telecommunications would provide 50% of corporate revenue by the century’s end, as the gradual convergence of telecommunication and computer systems opened a vast new field known as integrated service digital networks.

To pursue such goals Nixdorf needed yet more capital, and in 1984 the company made its first public offering of stock, first in West Germany and then also on the Swiss markets. Response was outstanding, as expected for a company whose 1984 sales had reached DM3.27 billion and continued to climb at about 21% per year. Heinz Nixdorf had become something of a legend in his native land; the employer of 20,000 skilled German workers was a symbol of that country’s unflagging determination to remain a world leader in the crucial computer industry.

When the founder died unexpectedly of a heart attack while dancing at a company party in March 1986 his employees were stunned, but none doubted that under new chairman Klaus Luft the Nixdorf ascent would continue. At that time the company offered both a full line of IBM-compatible minicomputers, workstations, and terminals, and a new series of TARGON machines using the UNIX “open” operating system—the only real competitor to that of IBM.

Nixdorf was Europe’s largest seller of software and had built perhaps the world’s most dedicated, knowledgeable sales force to help its many smaller customers make intelligent use of the machines and programs they purchased. The company always worked from the customer to the machine, not vice versa, in that way earning the kind of loyalty that ensures repeat sales. For all of these reasons, therefore, the financial community was puzzled when it became apparent that 1988 profits were not going to be as spectacular as Nixdorf had expected. As the months went by, a rather embarrassed Klaus Luft admitted that profits would indeed not be spectacular at all, except in a wholly negative sense: profits for the year were DM26 million, down 90% from the previous year’s record DM264 million.

The year 1989 proved to be an unprecedented nightmare for Nixdorf. A first half loss of DM297 million snowballed into a second half nearly twice as bad. Since Deutsche Bank and the Nixdorf family—who still controlled 100% of the voting stock—were determined to keep the company in German hands, the Siemens buyout was the most advantageous solution.

Nixdorf was overcome by an unfortunate combination of factors largely outside its control. The company suffered a triple blow from the economy at large. The price of computer chips skyrocketed; the Nixdorf mix of sales shifted rapidly from high-margin bank installations to low-margin office and retail work; and, most importantly, increased world competition and standardization of products severely depressed hardware prices. The international movement toward so-called open systems means that an increasing percentage of equipment is interchangeable, which drives standard part prices down and forces competitors to “add value” to their own products in order to justify a higher final price. Nixdorf thus found itself paying more for the computer chips with which it assembled machines that sold only at lower prices. The element the company could have better managed was the excessive growth of its highly paid personnel, most of them software designers and engineers.

Despite such difficulties, Siemens was happy to pay US$350 million—a good price—for its smaller cousin. The acquisition gave Siemens a strong position in the midrange computer market, where it was previously weak, and made the parent company the seventh-largest computer maker in the world. For the Nixdorf family, the deal brought to an abrupt end one of Germany’s most successful postwar economic creations, as another maverick entrepreneur was swallowed up by a larger competitor whom only a few years before it had consistently outperformed in the marketplace.

Principal Subsidiaries

Nixdorf Computer Leasing GmbH; Nixdorf Computer GmbH & Co. Verwaltung; Nixdorf Computer Datenverarbeitungssysteme GmbH; Nixdorf Computer Miete GmbH; Nixdorf Entwicklungsgesellschaft für Kommunikationstechnik mbH; Nixdorf Microprocessor Engineering GmbH; Nixdorf Software Engineering GmbH; Nixdorf Computer Pty. Ltd. (Australia); Nixdorf Computer Ges. m.b.H. (Austria); Nixdorf Computer SA (Belgium); Nixdorf Computer Canada Ltd.; Nixdorf Computer China Ltd. (Hong Kong); Nixdorf Computer A/S (Denmark); OY Nixdorf Computer AB (Finland); Nixdorf Computer France SA; Nixdorf Computer SA (France); Nixdorf Computer Lyon SA (France); Nixdorf Computer Distribution SA (France); Nixdorf Computer Ltd. (U.K.); Nixdorf Computer AE (Greece); Nixdorf Computer Ltd. (Hong Kong); Nixdorf International Financial Services Ltd. (Republic of Ireland); Nixdorf Computer International Ltd. (Republic of Ireland); Nixdorf Computer Ltd. (Republic of Ireland); Nixdorf Computer S.p.A. (Italy); Nixdorf Computer Japan K.K.; Nixdorf Computer SA (Luxembourg); Nixdorf Computer SA (Morocco); Nixdorf Computer B.V. (Netherlands); Nixdorf International Finance B.V. (Netherlands); Nixdorf Computer Ltd. (New Zealand); Nixdorf Computer A/S (Norway); Nixdorf Computer (Singapore) Pte. Ltd.; Nixdorf Computer International Singapore Pte. Ltd.; Nixdorf Regional Headquarters Pte. Ltd. (Singapore); Nixdorf Computer (Pty) Ltd. (South Africa); Nixdorf Computer SA (Spain); Nixdorf Computer AB (Sweden); Nixdorf Computer AG (Switzerland); Nixdorf Computer Ticaret A.§. (Turkey, 51%); Nixdorf Computer Corporation (U.S.A.); Nixdorf Computer Engineering Corporation (U.S.A.); Nixdorf Computer C.A. (Venezuela).