ECS S.A. - Company Profile, Information, Business Description, History, Background Information on ECS S.A.

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History of ECS S.A.

As Europe's largest computer leasing company, ECS S.A. provides a wide range of computer-related services, from leasing to sales, installment, and maintenance of personal, mainframe, and minicomputers. While the company's emphasis was traditionally on IBM and IBM-compatible machines, ECS extended its expertise to other computer platforms by the 1990s. The company not only supervised hardware delivery and installation, but provided data processing assistance, user training, and hardware maintenance for multi-component computer systems. "Our role is to free companies from hardware-related constraints so that they can devote their undivided attention to data and applications," noted CEO Gilles Tugendhat in his 1991 letter to shareholders.

ECS (Europe Computer Systems) was founded in 1974, under the guidance of Jean-Louis Bouchard. Mr. Bouchard recognized that rapid growth in the computer industry would strain the budgets of increasingly computer-dependent companies. The costs of using and updating computer hardware, however, could be defrayed by the support of a third party, the computer lessor. ECS rose to the occasion, with special emphasis on IBM equipment, which set the standard for excellence in the information technology industry and also promised value in the second-hand market. In the late 1970s, IBM itself withdrew from the computer leasing business, giving ECS room to round up more of the market share.

By the mid-1980s, ECS had done just that, reporting a turnover of FFr 3,239 million ($324 million) and a net profit of FFr 42.3 million ($4.2 million) for 1985. Such figures marked a good point of departure for the company's new chairman, Gilles Tugendhat, who succeeded Jean-Louis Bouchard in December 1984. Indeed, by the end of 1986, ECS claimed 15 percent of the IBM market in France.

A strong home base served as a strategic ground for aggressive forays into international markets. Starting in 1984, ECS embarked on a major expansion program to establish a network of overseas subsidiaries in Italy, Japan, Belgium, West Germany, and the United Kingdom. Even though the company's late-1986 move into the United Kingdom came at a turbulent time in the computer industry, ECS projected a $50 million turnover in the first year for that market. Such optimism was justified; by May 1987, the company had already opened a second U.K. office at Birmingham's Aston Science Park. Other foreign subsidiaries also profited. ECS Japan, for example, had been created in 1986 to capitalize on the second largest market for operational leases on IBM equipment outside the United States. By November 1987, the Bank of Tokyo had acquired a five percent stake in the leasing company, promising future growth and stability in that key market. By 1990, ECS boasted an international sales network made up of 32 agencies or regional offices in France, 35 international offices, and 518 employees in 47 different cities, according to that year's annual report.

In its formative years, ECS's innovative rental programs were the backbone of its success. Such programs were particularly appealing to companies that wanted to fulfill their computer-related needs while eliminating the need for amortization. The purchase of equipment often forced organizations to exceed their financial means in order to accommodate their projected processing needs. Rental, on the other hand, permitted such companies to access the exact level of computing power they needed, without tying up capital. Moreover, rental programs permitted versatility by which ECS customers could stay on top of quickly evolving market trends and more easily seize state-of-the-art opportunities as they arose.

ECS employed numerous refinancing methods to maximize its financial credibility while minimizing its risk. Sale and leaseback agreements, for example, permitted ECS to bill customers for rent payments while making identical payments to finance companies, thus remaining a party, but not the sole issuer, of the rental contract. Lease contracts, on the other hand, permitted ECS to sign as an agent but not a party to the basic rental agreement; customers were billed directly by the finance companies for rent payments. By tailoring such techniques to the intricacies of each specific contract, ECS was able to free itself of liquidity, bad debt, and interest rate risks by transferring them to finance companies. Thus, ECS's financial savvy was as important as its technical computer expertise in distinguishing itself as a leader in the information processing industry.

Beginning in the mid-1980s, ECS adapted to the unprecedented growth of personal computers--and server-managed networks of such machines--for business applications where medium to large configurations had been used in the past. "The master/slave configurations inherited from centralized data processing will be replaced by client/server architectures in which micros and mainframes dialogue as equals," stated ECS's 1990 annual report. From 1987 to 1989, the microcomputer industry saw rates of growth approaching 30 percent, according to the market research firm IDC. Into the early 1990s, such growth continued at a healthy, but less astronomical rate of approximately 12.5 percent.

By 1988, the computer weekly 01 Informatique had published a report which listed France's top 500 computing companies and ranked ECS in third place, after Compagnie des Machines Bull S.A. and market leader IBM France. ECS reported an increase of 122 percent in net profits to FFr 49 million for that year, according to Les Echos news source on March 8, 1989. In 1989, ECS Diffusion--the company division geared specifically toward microcomputer business--sold nearly 41,000 PCs in Europe. Then in 1990, that division grew by 67 percent, compared to the market average of 12.5 percent. Based on impressive turnover and profits in its main divisions, ECS planned to grow its business by about 20 percent per year from 1989 through the early 1990s, according to Computergram on May 15, 1989 (a projection that Antoine Colboc, managing director of ECS UK reaffirmed on May 2, 1991 in Computer Weekly magazine).

A key contributor to ECS's competitiveness was its move into software consulting and development in the late 1980s. In November 1987, the company set up a joint venture with software developer CCMC and founded its Proland subsidiary to provide standard software solutions. Proland's services catered primarily to small and medium-sized businesses and subsidiaries of large groups--clients that constituted the bulk market for IBM's mid-range computers, such as the 36 and 38 series and the AS/400, after its introduction in 1987. The company developed software programs specifically for those systems. Further development work in "native" AS/400 mode led to two key products in 1990: Pluriel, for personnel management, and Réel, for accounting management. Unfortunately, these products reached a market that was hardly accommodating.

The computer market of the early 1990s suffered the shockwaves of general economic malaise. With information technology accounting for a growing share of business expenditures, recessionary pressures of the late 1980s were felt more than ever before in computer-related industries. Growth of sales volume for suppliers in all categories (hardware, software, and services) hovered close to zero. In efforts to maintain their market shares, computer manufacturers engaged in an aggressive price war (one that showed no signs of abating as late as the mid-1990s). Rather than augmenting sales of their products, such price incentives merely encouraged consumers to buy more powerful computer configurations for their money. "The phenomenon illustrates a degree of maturity among users who are more interested in making the most of a given technical context," noted ECS's 1991 annual report. For lessors, the situation was exacerbated by re-entry into the 1990s leasing market of major manufacturers, especially IBM, which had discontinued such operations in the late 1970s.

Though ECS managed to hold high ground compared to its competitors, the company still felt the sting of the computer industry's lashing in the early 1990s. ECS suffered a loss in 1991, with performance falling 104.5 percent to a loss of FFr 7.1 million on a comparable basis (the net result was down 133.9 percent for a loss of FFr 23.8 million).

ECS's troubles were paralleled by the even greater woes of its main ally, IBM. That company, which had virtually dominated the computer industry through the mid-1980s, saw its market share plummet. Major strategic reorganization at IBM slowed down that erosion, but couldn't reverse it. "IBM has embarked on what could be accurately called a cultural and functional revolution on a scale commensurate with that of the organization, in other words, gigantic," noted ECS's 1991 annual report. IBM's initiatives included administrative downsizing, reorientation toward major original equipment manufacturer (OEM), and technological collaborations with other manufacturers such as Apple Computer, Inc. In addition, IBM continued to set industry standards with its products: AS/400 minicomputers (which claimed 23 percent of the market for intermediate systems in 1992, according to Dataquest); the OS/2 personal computer operating system (upgraded to a more powerful WARP version by 1994); and MVS standards for large systems. Still, the computer giant took it on the chin in the early 1990s, reporting 1992 losses of nearly $5 billion, the worst showing in its history.

Such challenges in the computer industry did reveal a bright side, though. As ECS pointed out in its 1991 annual report, "the recessionary climate and the resulting cost-cutting drives ... [boosted] secondhand sales and [stimulated] interest in less costly third-party maintenance solutions." And in 1992, CEO Gilles Tugendhat conceded that lingering recession placed constraints on growth potential, but "presented new opportunities created by lower costs."

Along with other industry leaders, ECS stayed afloat in the turbulent market by trimming waste and consolidating operations. 1990 saw the consolidation of international branches, particularly in ECS's Italian operations; while setbacks in the company's German activities "served to remind us that procedures and expenditures must be constantly monitored," according to Tugendhat in his 1990 letter to shareholders. Inventory and stock management became key concerns as well. ECS informed L'Usine Nouvelle on February 13, 1992 that "savings of FFr 10 million per annum can be realized by reducing stock levels from six to three weeks."

To best realize such cost-cutting measures, ECS implemented a state-of-the-art, centralized management system for all its operations and constructed a central facility at the hub of its high-tech empire. Starting in 1987, the company forged ahead on its enhancement of the ECS Information System, a central administrative and management network in which FFr 65 million had been invested by 1990. The system comprised more than 2,000 programs and nine million lines of code, and connected more than 35 ECS branches throughout France. It streamlined everything from standard sales and financial management to company-specific brokerage, logistics, and accounting management of the installed base. In PC sales, for example, ECS Information System coordinated orders, billing, and commissions to sales agents.

ECS's efforts to centralize its operations brought about the 1990 construction of a new, 20,000 square meter center in Bussy-Saint-Georges, an investment of more than FFr 100 million ($20 million). By 1992, all technical and logistical activities of ECS on a European scale--from inventory management to testing, configuration, and logistics--were coordinated there. In 1992 alone, 60,000 PC configurations were shipped to European customers from Bussy, and more than 375,000 products passed through the plant (central processing units, peripherals, add-ons, software, application packages, etc.), according the 1992 ECS annual report. The site brought money-saving economies of scale and facilitated consolidation of inventory and standardization of international procedures and services. Through this common platform, "Bussy-Saint-Georges has become 'Bussy-upon-Europe'," according to the company report.

In preparation for the twenty-first century, ECS--like other leading leasing companies--moved toward broader diversification, to include microcomputer distribution, maintenance, and services as part-and-parcel of its main line of business. In 1991, the company introduced its ECS Plus package: an offer combining the sale and rental of full-service personal computer utilities in a single contract to simplify the upgrade of installations.

The company also kept close watch on new system trends in the computer industry to maintain its competitive edge. Users tended to move away from mainframe configurations toward increasingly powerful personal computers and server-managed PC networks. "From Multimedia to Electronic Data Interchange (EDI), local networks to databases, graphics interfaces to compression techniques," ECS's 1990 annual report noted, "all of the latest technologies are aimed in the same direction: the transparent circulation of information between companies, their employees, their customers and their suppliers."

By the mid-1990s, the "latest technologies" of 1990 had become commonplace. ECS continually refocused its development toward new applications and tools. "Content Applications," for example, represented enormous banks of data from which users would have information customarily "served" by machine. And as early as 1992, the company's annual report began outlining a new direction by which many different "content applications," would be linked together on a global information network. Whatever shape that "information highway" would take, ECS was positioning itself to travel in the fast lane--bringing together a broad range of financial, technical, and logistic competencies in the workplace, and in "cyberspace."

Principal Subsidiaries: ECS Diffusion; ECS Maintenance; ECS Technologies; Fortiori; Proland; ECS International Italia SpA (Italy); ECS International U.K. Ltd. (U.K.); ECS International Deutschland GmbH (Germany); ECS Japan K.K.; ECS International Belgium S.A./N.V. (Belgium); ECS Computer Suisse S.A. (Switzerland).

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Further Reference

Aryanpur, Arah, "UK: ECS Plans to Offer Complete Personal Computer Ordering, Supply and Maintenance Service," Computer Weekly, May 2, 1991."Bank of Tokyo Takes 5% of ECS Japan," Computergram, November 16, 1987."France: Computer Leasing Companies Report Poor Performance in 1989," L'Usine Nouvelle, May 11, 1990."France: Distribution Sector Affected by Computer Industry Crisis," L'Usine Nouvelle, February 13, 1992."France: ECS Hopes to Return to Black in 1992," AGEFI, June 18, 1992."France: Golden Age is Over for Computer Leasing Companies," AGEFI, August 2, 1990."French Computer Leasing Giant ECS is Trying to Break into the Competitive Mid-Range IBM Leasing Market in the UK," Computing, October 8, 1987."French Dealer ECS Plans to Break into Personal Computer Market," Computer Weekly, July 4, 1991.Kornel, Amiel, "European Community Casts Watchful Eye on Pricing," Computerworld Extra!, December 3, 1986, p. 57."Leasing Companies Have Warned that IBM's Decision to Re-Sell Used Mainframes Has Knocked 30% Off Their Prices and Could Cause a Price War," Computing, November 19, 1987.

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