Via Jervis 77
The Italian telecommunications market is extremely dynamic, young and with wide margins for growth. Olivetti intends to make the most of these opportunities, magnified by the current liberalization process, creating a leading industrial group within Europe, capable of providing telecommunications services and technological infrastructure for the new millennium.
Olivetti S.p.A. (also known as Olivetti Group), through its majority ownership of Telecom Italia S.p.A., is Italy's leading telecommunications company. Telecom Italia is the former Italian phone monopoly, which was privatized in 1997 then taken over by Olivetti in a 1999 hostile takeover. In addition to its fixed-line telephone operations, Telecom Italia also holds majority control of Telecom Italia Mobile, which specializes in cellular telephone services. Olivetti's emergence as a leading telecommunications player marked a dramatic shift in the company's history. Olivetti was long a world leader in the manufacture and sale of typewriters, before its 1980s plunge into the information technology market, where it became a top European maker of computers and computer systems. However, the company nearly went bankrupt in the 1990s as losses in its computer operations mounted; the company eventually divested its personal computer (PC) division. Though primarily focused on telecommunications as it approached the 21st century, Olivetti maintained some information technology interests, including Olivetti Lexikon, which continues the company's office products tradition through the manufacture of fax machines, photocopiers, printers, and other products.
Olivetti was founded in 1908 in the small northern Italian town of Ivrea, not far from Milan. Camillo Olivetti had been much impressed, on his various trips to the United States, with the typewriter, already well established in U.S. offices but still largely unknown in his native Italy. Olivetti pulled together a modest capital fund of L 350,000 and, in Ivrea, Italy, opened his own typewriter manufacturing plant--the country's first&mdash--ploying 20 workers.
In 1911 he exhibited the first Italian typewriter, the Olivetti M1, at the Turin Universal Exposition. The M1 was not significantly more advanced than the U.S. machines on which it was modeled. However, as Olivetti commented at the time, 'the aesthetic side of the machine has been carefully studied.' The M1's 'elegant and serious' design was typical of Olivetti. As the company grew, this preoccupation with design developed into a comprehensive corporate philosophy, which embraced everything from the shape of a space bar to the color scheme for an advertising poster. Many years later the Museum of Modern Art in New York City would recognize Olivetti's enduring commitment to design by mounting an exhibition of its products and honoring the company as the leading design firm in the western world.
During Olivetti's first 20 years, Italy suffered the effects of World War I, uncontrolled inflation, political instability, and finally the crash and Great Depression of 1929. Olivetti itself, however, enjoyed remarkable and lasting success in the relatively immature Italian industrial economy. The little plant in Ivrea expanded rapidly, adding both floor space and employees as fast as they could be assimilated; yearly machine production shot up tenfold between 1914 and 1929, from 1,300 to 13,000 typewriters. As the company added new models to its line--the M20 in 1920 and M40 ten years later--it opened sales offices in six foreign countries, originating Olivetti's consistently international approach to business. In 1928 Camillo Olivetti's son Adriano had opened the company's first advertising office, which soon employed some of Europe's leading artists to communicate Olivetti's commitment to aesthetics as well as efficiency. Adriano Olivetti, born in 1901, gradually took on more of the company's management, becoming general manager and effectively head of the firm in 1933.
During this time, the Olivettis took an active interest in the welfare, particularly the living conditions, of their workers. The company began building housing for its workers in 1926, and made an effort to create a corporate environment designed as a haven for its employees. As Adriano Olivetti gradually gained control of the family business during the 1930s, he embarked on an ambitious plan for the entire town of Ivrea, building schools, housing, roads, and recreation facilities in addition to regularly expanding the Olivetti plant itself. Olivetti founded a magazine and later a publishing house to further his social ideals, and remained a leading force in European industrial philosophy until his death.
Providing the wherewithal to support such philanthropy was Olivetti's continuing success in the marketplace. The company increased typewriter production threefold between 1929 and 1937, at which later date some 40 percent of its machines were of the new, portable variety introduced in 1933. Other new products were added during these years as well--office furniture, adding machines, and teleprinters&mdash′esaging the company's eventual emergence as a diversified office-products manufacturer. Olivetti went public in 1932, initially capitalized at L 13 million and managed to maintain its profitability through the worst years of the Depression. Within ten years, corporate capital had tripled, employees numbered 4,700, and Olivetti machines were being exported to over 22 countries.
As World War II dragged on, however, the position of the Olivetti family, which was Jewish, became untenable. Adriano Olivetti was forced to flee the country shortly after his father's death in 1943; when he returned at war's end, he was able to pick up the pieces quickly and join the postwar economic boom.
Olivetti enjoyed unprecedented growth in the years following the war. The company expanded its export business to include the entire industrialized world. It also acquired Underwood, the U.S. typewriter manufacturer, in 1959, and built new plants in southern Italy, Spain, Brazil, Argentina, Mexico, and the United States. Its growing collection of office products all exhibited the aesthetic sensitivity that had made Olivetti famous in the world of design, and Adriano Olivetti pursued his vision of an industrial giant responsive to the needs of both consumer and worker.
In 1959, in addition to its line of typewriters, adding machines, teleprinters, and office furniture, Olivetti unveiled the Elea 9003, Italy's first computer. This room-sized machine was built with an eye toward eventual competition with IBM and the other early computer developers. However, within a few years Olivetti realized that it could not match strides with the more advanced U.S. products and abandoned the mainframe market.
Adriano Olivetti's death in 1960 brought to an end the Olivetti family's direct management of the corporation. The company employed some 40,000 people, less than half of whom worked in Italy, in 1960, and its capital had reached L 40 billion. Despite an impressive list of awards and international acclaim, the company entered a period of falling profits and gradual insolvency. Olivetti found itself in need of outside capital and management, and in 1964 it was rescued by a consortium of Italian banks and industrial concerns. Bruno Visentini was made president.
While Olivetti left the mainframe market during the early 1960s, it did not ignore the electronic revolution then just beginning. In addition to converting its adding machines to what we now call calculators, the firm began manufacturing electronic typewriters, banking terminals, and telecommunications equipment. Olivetti also entered two new markets, offering the Copia 2000 line of copiers and an increasing array of industrial-automation systems, including robots and precision machine tools. Most significantly, the company continued to produce smaller computers, and by 1965 was selling both minicomputers and an early version of the desktop micro. Olivetti thus survived a period of technological change and international competition that proved to be too much for many other long-established machine manufacturers.
Late 1970s-80s: De Benedetti and the Shift to Computers
Olivetti survived the challenge, but it did not prosper. By the end of the 1970s the firm employed a peak of 62,000 individuals, and had L 1.55 trillion in sales in 1978; but with corporate debt at an alarming level, Olivetti turned once again to the financial markets for help. Carlo and Franco De Benedetti, young entrepreneurial brothers, acquired 14 percent of the company for a bargain price of US$17 million. Carlo De Benedetti, who took over as chief executive, brought to Olivetti more than an infusion of capital; he pushed the company to drop its traditional corporate style. Despite the recent electronic overhaul, the company had remained relaxed and rather friendly. For years Olivetti had supported various artistic and philanthropic projects, building day-care centers for its employees as well as beautiful typewriters for its customers, but it had not been especially concerned with efficiency and profit. De Benedetti realized that such a business would not survive the challenge posed by Asian international competitors.
Olivetti continued its expansion in the information technology market, but with new vigor, efficiency, and aggressiveness. Olivetti accordingly added new products, such as cash registers, automated teller machines (ATMs), and advanced copiers, to its line of electronics systems and made a major commitment to its micro- and mini-computer divisions. The company's 1982 personal computer, the M20, was widely recognized as a solid machine, but it was not IBM compatible. The following year Olivetti pushed into production the M24, which was not only IBM compatible but an attractive enough product to bring De Benedetti the international trading partner he had hoped to find. AT & T offered to sell Olivetti micros under its own name in the United States, while Olivetti would sell AT & T minis outside the United States. In addition, AT & T agreed to buy 22 percent of Olivetti, retaining an option on a further 18 percent.
The deal was signed in December 1983 and was an immediate success. AT & T sold the Olivetti machines as fast as it could get them, distributing some 200,000 units in 1986 alone, while Olivetti produced more modest but acceptable sales figures with the AT & T minis. De Benedetti made the cover of Time as Olivetti sales reached L 7.3 trillion and profits hit L 565.5 billion. Olivetti, however, was late on several key innovations in 1987. As a result, AT & T's sales fell off drastically, bringing with them Olivetti profits, and the two partners nearly ended relations in April 1988. Amid mutual recriminations, De Benedetti reaffirmed his faith in Olivetti by upping his share in the company to 20 percent, which also made a takeover by AT & T less likely. Profits continued to fall nevertheless, to a 1988 low of L 356 billion, as Olivetti's stock price and market share both took a beating in the tightening computer race.
De Benedetti took decisive action in the beginning of 1989. He and Vittorio Cassoni, the new managing director of Olivetti, completely revamped the firm's lines of command, creating four new and separate companies under the ownership of Olivetti. In order of decreasing sales, these companies were: Olivetti Systems and Networks, which handled the production and marketing of all professional level personal computers (PCS) and minicomputers; Olivetti Office, which managed the bulk of the company's traditional business in fields such as typewriters and calculators, as well as PCS, photocopiers, and facsimile machines for home and office; Olivetti Information Services, which offered a wide variety of information services, including software, large-scale integration projects, and custom-tailored information networks for large users; and the Olivetti Technologies Group, a collection of 24 smaller companies engaged in the ancillary computer hardware field and the development and management of large-scale industrial projects. De Benedetti and Cassoni hoped that the new organization would provide a more efficient format for Olivetti's extremely wide variety of products and technologies.
1990s: Computers Out, Telecommunications In
Despite the late 1980s revamp, Olivetti's fortunes continued to worsen in the first half of the 1990s. Much of the company's difficulties still stemmed from its troubled PC business, which lost its main partner in 1989 when the alliance with AT & T ended. Within the larger environment of a weak European economy and an even weaker Italian economy, the PC industry became increasingly competitive in the 1990s, with prices plunging and U.S. companies invading Olivetti's European turf with low-priced PCs that were at least initially superior to Olivetti's. Consequently, the company posted its first loss in 13 years in 1991, a US$401 million net loss, then stayed in the red through 1996, with the darkest days coming in 1995, which produced a net loss of US$1.01 billion on sales of US$6.21 billion. Numerous restructurings were attempted to turn the tide, including massive reductions which cut the workforce by more than half, from 53,700 in 1990 to 26,300 in 1996. During this period, De Benedetti was also embroiled in legal difficulties. In 1992 he was convicted in connection with the fraudulent bankruptcy of Milan-based Banco Ambrosiano in 1982. Upon appeal, De Benedetti, initially sentenced to six years and four months in prison, succeeded in having the sentence reduced to four years and six months in 1996, and then in having the conviction tossed out entirely in 1998. Further problems came in 1993 when Olivetti came under investigation as part of the nationwide crackdown on corruption. De Benedetti voluntarily appeared before magistrates in Milan and admitted that Olivetti had paid bribes to political figures to gain contracts; he was never charged in connection with this widespread probe.
Although it was little noted at the time, the seeds of Olivetti's revival lay in the 1989 formation of Omnitel, the company's first foray into telecommunications. Specializing in the burgeoning cellular phone market, Omnitel did not become operational until late 1995 following its successful bid for a license early that same year--a license purchased for a hefty US$500 million. The wireless start-up was led by Olivetti, which held a 36 percent stake, in partnership with U.S. firms AirTouch Communications, Bell Atlantic Corporation, and Cellular Communications International; with Germany's Mannesmann AG; and with Sweden's Telia. Although it faced stiff competition from the state-owned Telecom Italia Mobile, Omnitel saw its subscriber base increase rapidly after launch, reaching 713,000 by the end of 1996. Olivetti also ventured into the fixed-lined telephone sector through the formation of Infostrada, which began competing head-on with Telecom Italia in the wake of the deregulation of the Italian telecommunications industry.
Already analysts were calling Olivetti's telecommunications ventures its most important assets, but the company continued to be saddled with its flagging PC operations. Under pressure from foreign investors clamoring for change, De Benedetti resigned as chairman in late August 1996 although he remained a powerful figure through his stake in the company of about 14.5 percent. Francesco Caio, who had led the successful launch of Omnitel, took over the helm but was ousted in mid-September amidst management chaos. A more permanent successor was soon found in Roberto Colaninno, a man with ties to De Benedetti--making investors suspicious about who was really in charge--who nonetheless, according to Euromoney, proclaimed, 'I took this job on three conditions, that De Benedetti is considered a normal shareholder, with the same rights as any other; that my job is to relaunch this business as a profitable company and that I be given enough power to do all this.'
Under Colaninno's leadership, Olivetti launched a sweeping reorganization, highlighted by the April 1997 sale of the PC business to U.K. venture capitalist firm Centenary Corporation. Olivetti's telecommunications operations were strengthened&mdash was its balance sheet--through an enhanced alliance agreement with Mannesmann reached in September 1997 whereby Mannesmann gained a 49 percent stake in a newly formed holding company for Olivetti's telecom interests in exchange for two payments totaling US$1.36 billion. Another key development came in March 1998 when Wang Laboratories Inc. (later Wang Global) acquired Olivetti's computer services business for about US$430 million, with Olivetti emerging from the deal with a 16 percent stake in Wang Global. Other, smaller divestments were also made, leading Olivetti to be primarily a telecommunications firm by the end of 1998. Omnitel's subscriber base reached 6.2 million by that time, making it the third largest mobile phone operator in Europe. In the summer of 1998 Infostrada and its fiber-optic network became fully operational, with the upstart firm gaining more than 900,000 customers for its voice services by year-end, more than 750,000 of which were residential. Infostrada was also involved in Internet services, data transmission, and international telephone cards.
Colaninno was not done yet, however. In February 1999 he launched a hostile bid to take over Olivetti's chief domestic telecommunications rival, Telecom Italia S.p.A., which had been privatized in 1997 and was five times the size of Olivetti. Telecom Italia was not only the number one telecommunications firm in Italy, it was also the sixth largest in the world, with interests in or joint ventures with companies in Spain, France, Greece, Argentina, Brazil, Chile, and elsewhere. The company also held majority control over the largest cellular phone operator in Europe, Telecom Italia Mobile (TIM), and was involved in satellite systems and services through its Telespazio unit. Telecom Italia attempted to fend off the Olivetti bid first by proposing a merger with TIM, then seeking to merge with Deutsche Telekom, but Colaninno's bold gambit prevailed in the end, at least in part because it kept Telecom Italia in Italian hands. In June 1999 Olivetti completed its tender offer, securing 52.12 percent of Telecom Italia's shares for US$34.8 billion. By October of that year, it had raised its stake to 55 percent. To fund the takeover, as well as secure antitrust approval, Olivetti sold its holdings in Omnitel and Infostrada to Mannesmann; it also took on more than US$14.7 billion in debt. Additional funds were raised in August 1999 when Olivetti sold to Wang Global its 80.1 percent stake in Olivetti Ricerca, a specialist in research and development activities in the field of information technology and telecommunications.
Olivetti had completed its acquisition of Telecom Italia through a publicly traded subsidiary, Tecnost S.p.A., which was 70 percent owned by Olivetti. Tecnost had been a maker of automation systems and gambling machines, but these operations were sold to Olivetti in early February 2000. Tecnost thereby became purely a holding company for Olivetti's telecommunications activities. As part of its plan to reduce its heavy debt load, Olivetti attempted in late 1999 to transfer control of the highly valued TIM from Telecom Italia to Tecnost. Olivetti abandoned this maneuver, however, following fierce resistance from minority shareholders and institutional investors who considered it detrimental to Telecom Italia. They had been expecting Tecnost and Telecom Italia to merge, which had been Olivetti's original plan.
This shareholder revolt was a setback for the new Olivetti, but it was unclear how serious a one it was. Tecnost remained saddled with a huge debt load. Telecom Italia was in desperate need of restructuring, and plans to cut the workforce by as much as 13,000 were already beginning to incur union resistance. At the same time, the telecommunications industry in Europe and abroad was in the midst of its greatest wave of consolidation yet, including Vodafone's blockbuster hostile bid for Mannesmann, which some analysts claimed had its roots in Olivetti's takeover of Telecom Italia. Olivetti itself appeared vulnerable to a takeover, although the Italian government, which maintained a 3.95 percent stake in Telecom Italia, would take a dim view of the fall of the former phone monopoly into foreign hands and had the ability to block major decisions affecting the company.
Principal Subsidiaries: Tecnost S.p.A. (72.8%); Telecom Italia S.p.A. (55%); Olivetti Lexikon S.p.A.; O.i.S. Italia S.p.A.; Olivetti Multiservices S.p.A.
Principal Competitors: Alcatel; Autostrade--Concessioni e Costruzioni Autostrade S.p.A.; British Telecommunications plc; Canon Inc.; Deutsche Telekom AG; ENEL Societa per Azioni; France Telecom; Italgas--Societa Italiana per il Gas S.p.A.; Mannesmann AG; MCI WorldCom, Inc.; Mediaset SpA; Nokia Corporation; Oce N.V.; Pitney Bowes Inc.; Ricoh Company, Ltd.; Telefonaktiebolaget LM Ericsson.