Reference no: EM133147787
Electronics products come and go, but the lessons of the past are usually ignored or forgotten. The experience of the Psion Organiser is as relevant now as when it played out several years ago. In 1984, the Psion Organiser was launched and immediately created a new market for hand-held organisers. It may seem odd now, but it was revolutionary at the time because until it appeared nobody knew that there would be a consumer demand for such a gadget. It quickly became a cult possession and an icon of the period; its impact can be gauged from the fact that it can be found on display in the Victoria and Albert Museum. It even came to rival the leather-bound Filofax as a business status symbol.
In 2001, the company announced that it was leaving the handheld organiser business and making about 250 employees redundant. Its share price had gone from 200p in 1999 to 1400p in 2000 and fell back again to 100p in 2001. Clearly something major had happened which had resulted in Psion losing its competitive advantage and early domination of the market.
Things changed
As might be expected, the market for organisers changed greatly between 1984 and 2001. Several global competitors had entered the market, including Palm, Handspring, Nokia and Sony. These companies not only sold a basic organiser cheaply but included a telephone in the higher end products. Psion failed to develop a version of the new integrated devices, particularly those including a phone. Instead, Psion negotiated a strategic partnership with Motorola to develop integrated devices, but Motorola pulled out of the arrangement at the beginning of 2001 as part of a global cost reduction exercise. Subsequently, Psion spent about six months considering what its options were and what it ought to do. The company realised the scale of its problems when the new Nokia was specifically advertised as having all the functionality of a Psion organiser plus a phone.
Telephone integration was not all that Psion had missed out on. In 1996, Palm produced the Pilot, an organiser which could synchronise data with the user's PC. Psion did not anticipate that this functionality was what users wanted and continued to believe that users would wish to be keyboard orientated. As a result, Psion missed out on this new market segment.
In the meantime, the organiser market itself became increasingly difficult. The influx of new entrants had led to excess capacity, and it was not surprising to find that the prices of some Palm organisers were cut from $400 to $100 at the end of 2000. By mid 2001, Palm had 5 million unsold units which it wrote off for about $300 million. Psion found itself with a stock of over 20 000 units which it wrote off for about $15 million.
Psion recognised that the market was becoming increasingly 'commoditised' and in the opinion of Mr David Levin, the CEO, was becoming more and more like the PC market where margins are known to be very tight. In a press release Mr Levin said:
"As reported at the time of our Prelims in March and at the AGM in May, trading in Psion Digital has been difficult. As a result of this we are taking major action to reduce our cost base while focusing on developing and exploiting our intellectual property and know-how to secure profitable new markets. Psion Teklogix, operating in profitable wireless enterprise markets, will show continued growth this year, despite cutbacks in capital spending in North America. It is set to extend its position as our main operating division, and we will be launching a new range of industrial products in September."
David Potter, Psion's Chairman said in the same press release:
"The IT industry is experiencing its worst downturn since 1985. Against this background, it is essential that we take the hardest approach to cost control and a return to profitability, while avoiding exposure to oversupplied commodity markets. The enterprise markets of Psion Teklogix offer sound long-term growth opportunities, while Psion Digital will be focusing on its core assets in innovation and exploiting new premium markets for mobile networked devices."
Dr Potter
The Psion organiser was invented by Dr Potter, the chairman and founder of the company. Before that he was in the computer games business and claimed that he wrote one of the first flight simulators in 1981. However, he left the home computer games market because he felt it was becoming 'too crowded'. Indeed, Dr Potter claimed that exit from the handheld organiser market was based on the same logic. He considered the company was primarily about development and innovation and that it could not really compete in a mass market.
Where could Psion go?
It looked like Psion would have to reinvent itself once again, just as it did back in 1981 when it left the computer games market and went into hand-held organisers. Psion had a worldwide distribution network comprising more than 25 sales offices and over 50 independent overseas distributors. Although Psion stopped making organisers, Mr Levin said that Psion intended to keep exploiting the intellectual property from 20 years in the business. However, he was not explicit about how this would generate cash flows in the future. Over the years some 6 million Psion organisers have been sold and the company will continue to service these.
Psion was the largest shareholder in Symbian, a joint venture company owned by Psion, Ericsson, Motorola, Matsushita and Nokia. Symbian owned Epoc, the operating system for wireless devices. It was hoped that Epoc would become the operating system of choice for the next generation of Smartphones and Communicators.
Thus, the restructured Psion was intended to sell and service its existing product ranges and continue development of its net Book range of products for the education and corporate markets. The division's retained core development staff would focus on developing and exploiting Psion's intellectual property expertise and experience to create innovative mobile networking products and solutions in high value markets.
Psion decided to focus its future strategy on industrial and enterprise markets through Psion Teklogix; innovative markets in digital appliances through a restructured Psion Digital; and on its strategic investment in Symbian. All these activities were intended to provide client solutions through wireless networks both Wide Area and Local Area.
This would leave Psion's core business as selling services and devices for the industrial wireless market which was growing at between 15%-20% per year. Psion's share of the market was increased in 2000 by the acquisition of Teklogix, which generated two thirds of Psion's revenues.
The impact of the change in the organiser market could be seen in the company cash flows. Provisional revenues for the Psion Group in the first half of 2001 were up 5% at £99 million compared with £94 million in the same period for 2000. Revenues for the first half in Psion Digital were £36 million compared with £77 million in 2000. Revenues for the first half in the Psion Teklogix division (created from the merger of Teklogix operations acquired in September 2000 and Psion's existing Enterprise division) were £63 million, compared with the £17 million in Psion's Enterprise division in 2000. Psion has no gearing and cash of £17 million.
Thus, the increase in revenues from the wireless market more than compensated for the reduction in organiser revenues. Industry observers felt that the real future for Psion awaits Dr Potter's next big idea. The big idea did not materialise, and Psion Teklogix now focuses on the provision of mobile data and corporate networks.
Required:
- Identify the changes in the hand-held organiser market between 1984 and 2001.
- Assess Psion's strategic reaction to these changes.
- What future do you see for Psion from the viewpoint of 2001?