What You See is What You Get

by Sugar, Alan

  A couple of days later, my people were telling me that the telex machine was totally blocked by this lunatic sending through telexes, sometimes three yards long. Completely uninterested, I would glance at these telexes, which turned out to be transactions this fellow was making. I was just annoyed that he was blocking the telex line, as it was my only way of communicating with my suppliers, and called him up to give him a bollocking. I told him that I didn’t need to see these telexes. If he wanted to send me the stuff for the record, he should put it in the post. That’s how ludicrous the situation was.

  I only realised what was going on when, at the end of that financial year, my personal accountant pointed out to me that this fellow was losing me money as if it were going out of fashion. It transpired that he was buying and selling hundreds and hundreds of different companies’ stocks every day, taking a commission for buying, taking a commission for selling and using his discretion as to whether to get in or out.

  On top of this, to make matters worse, all the transactions were in yen. When I gave him the £250,000, the yen was around the 600 mark; by now it had dropped to something like 400. He had lost me a small fortune. I went berserk at this little man, but it seems I had signed some piece of paper that exonerated Nomura from any cock-ups. This was a lesson learned. I got out and cut my losses.

  From that day onwards, I’ve taken no notice whatsoever of any of these so-called experts in the stock market or fund managers who want to look after my money. If these bloody people know so much, why haven’t they got yachts and private planes themselves? Why do they need to do it for other people?

  I’m so happy that Nomura taught me a lesson. Putting it in perspective, it was cheap at the price because there are some real disaster stories to be told about the losses made by brokers and bankers on their clients’ behalf. It’s amazing how these companies can bamboozle you into signing forms that totally insulate them from any of the risk. Clearly what they do is not unlawful – the devil is in the detail of what you sign.

  Instead, I decided to invest my cash in property, based on the following simple criteria. Buy a building that is occupied by a well-known and respected tenant, in a good location. Look at the length of the lease the tenant has signed and if it’s longer than ten years, it would appear that this is a safe place to invest my money, as long as the return is at least equivalent to what I could receive by placing the money in a bank on deposit. The upside is that the values of the properties will increase as the years go by. Pretty damn boring, but it suited me down to the ground. It’s not that I am a distrustful person – certainly not – but I have absolutely no respect at all for the brokers, fund managers and all those other tossers in the City.

  *

  What to do with your money is a good problem to have and in the summer of 1988, my staff were to share this dilemma. The share options I’d granted them three years earlier were about to mature and kick in. Bob Watkins, Malcolm Miller, Jim Rice, Marion Vannier, Ken Ashcroft and my brother-in-law Mark Simons became millionaires overnight. If they came up with the money to pay for the shares I’d granted at the option price, they could immediately sell them and make themselves a fortune. Other staff, such as Dave Smith, Ivor Spital and a host of others, made in the region of £150,000–250,000. These were ordinary people and this was a load of money in those days, so you can imagine the elation.

  Jim Rice, in conjunction with the brokers, worked out a scheme whereby the employees would be lent some money for about half an hour to enable them to buy the shares then immediately sell some of them, so they ended up with cash in hand.

  I was delighted for everybody. It was real payback for a loyal group of people who had helped this dynamic company grow. I guess if you spoke to all of them today, they would say that never in their lifetime would they have imagined that just by being a simple employee they’d hit the jackpot like this.

  Each and every person was warned that they should put aside approximately 30 per cent of their windfall to pay capital gains tax. There was also the consideration that the directors should not be seen to be selling all their shares immediately – this would have been frowned upon by the City. So although they were looking at windfalls of around £1.5m in some cases, it was inappropriate to cash in and sell the whole lot. While I couldn’t tell them what to do, I did suggest they keep half their shares and cash in on the other half. They followed my advice and understood that this would be acceptable as far as the City was concerned.

  Bob, Malcolm and Mark decided to buy themselves new luxurious homes with their windfall. People like Jim and Ken, being typical accountants, were more streetwise and cautious and would never go down the path of getting themselves into potential financial problems. But there were some sad stories, similar to those you read nowadays about people who win the lottery and blow the lot. One member of the junior engineering team, a Scouser, was quite blunt when the big payday came. So much for loyalty – he copped his £250,000 and immediately resigned, saying that he was retiring to Spain with his wife to open a bar there. He was around thirty years old. When I heard this news, I shook my head, as if to say, ‘You poor, poor fellow. You’ll be back in a couple of years – a quarter of a million pounds is going to get you nowhere because there’s something called inflation.’ I don’t know what happened to him, but I suspect, like so many other people in those days who thought £250,000 was going to last them a lifetime, he must have got a wake-up call somewhere down the line.

  One sad story that emerged before the share options kicked in concerned Dickie Mould – Boycie – who was up in Stoke-on-Trent running Amstrad Distribution. It turned out he’d got himself into a lot of trouble. The first I knew about it was when Jim Rice told me that Dickie was banged up in Pentonville Prison. We were both shocked. Jim had found out that this had happened after the fourth or fifth time the police had been called to his house because of matrimonial disturbances. Unfortunately, this news was reported in one of the national papers, which must have been a further hammer-blow to him. I received a hand-written letter from Dickie, apologising to me for the shame that he’d brought on the company and asking me to accept his resignation.

  What also came to light was something that surprised us all – he had successfully disguised the fact that he was an alcoholic. As usual, after the event, you start hearing stories. The staff up in Stoke-on-Trent were saying that he was always pissed in the evening; sometimes he didn’t turn up; other times he’d make irrational decisions. I guess it’s easy to spot the signs in hindsight.

  I recalled a day when Dickie and I had visited Argos in Edgware. The fellow we went to see had an empty bottle of whisky in his dustbin. As we left his office, Dickie said to me, ‘Did you see that? There was an empty bottle of whisky in his bin – he must be on the sauce.’ I didn’t think anything of it at the time, but I guess it goes to show that it takes one to know one.

  Poor Dickie. Obviously things had got out of hand. I don’t know whether this was because he had to spend most of his time up in the Midlands or whether he was struggling with his own ego, in that he’d had a sideways promotion and was no longer a kingpin at Amstrad’s head office. Apparently, he was always telling the staff at Stoke-on-Trent that he was ‘talking to Alan every day’ when in fact he wasn’t. I guess I kind of left him on his own up there to get on with things and he must have craved my attention. To this day, I don’t know what sparked off his alcoholism, but what had I been thinking? How come I hadn’t known that this man was so troubled? One of the saddest parts about this was that, due to his resignation six months earlier, he was not eligible for his share option windfall.

  Jim kept in close contact with Dickie afterwards, so we knew that he’d decided to move to Spain to try to start a new life. It hurts me to say this, but the man we had so much fun with – taking the mickey out of him for his mad ways – one day, in a deep depression, committed suicide.

  There was a terrible feeling around the company. I felt guilty and vented my anger on people lik
e Jim Rice, Bob Watkins and Malcolm Miller, unfairly saying that it was our fault. We had taken the piss out of him, we had ostracised him, we had sidelined him.

  Malcolm and Bob told me that we shouldn’t feel guilty. We never knew of his secret alcoholism, we never knew anything about his private life. In fact, we’d never met his wife, not even at Amstrad Christmas parties. It was a really sad time and I think all of us felt bad seeing a colleague who had grown up with this monster company not being able to live with himself for reasons known only to his inner demons.

  *

  By the autumn of 1988, we were ready to enter the new Intel 20286 and 20386 PC market. Mark Jones came up with a design for a whole new range of computers – the PC2000 series – which would comprise the model PC2086 (which was simply a re-engineered PC1640 based on the Intel 8086 processor), the model PC2286 (using the 20286 processor) and the model PC2386 (using the 20386). This range of computers would offer a combination of twenty-four different configurations. One of our designers came up with the aesthetics for the product and it looked excellent, thanks to a front profile that was more stylish and much thinner than that of the competition.

  This design was to play a part in the impending demise of Amstrad in the PC market.

  Because of my supposed Midas touch, final decisions on how a product should look from a cosmetic point of view were made by me, based on the options put forward by our designer. Normally, I’d agree the design and pass it on to the engineers as a fait accompli. I did the same for the PC2000 series.

  In the case of the PC2086, this was no problem. However, big problems arose on the PC2286 and PC2386. When it came to engineering the internal construction, we had to split the circuitry between two PCBs and it was a real pig’s ear of a design. I recall being in Japan at the time with Bob when the reality of this design mess hit us squarely in the face, but we made the very bad decision to carry on. We did discuss scrapping it and starting from scratch, but unfortunately the pressure was on for Amstrad to bring out 286 and 386 machines fast. We were already seen to be late entrants into the 286/386 market, considering we were supposed to be the bigshots of the PC world, having taken over 30 per cent of the total European sales. What’s more, rumours that companies like Olivetti were also about to bring out low-cost 286/386 machines added to our panic. We made a bad call and ended up making a bad product.

  I won’t get too technical, but to understand the disaster that was about to unfold, I need to explain something about hard disk drives and how they work. In those days, the hard disk drive had to be connected to the computer using a hard disk controller card which would plug into one of the slots available on a standard IBM PC. The card itself was a very expensive item.

  Amstrad’s philosophy had always been to condense everything onto one PCB and not have separate items, so I commissioned our team to design our own hard disk controller chip and lay it down on the main PCB instead of buying a separate hard disk controller card, which I believe in those days cost around £60. The chip that we laid down on the PCB would cost some money but we saved approximately £45 this way.

  We bought the hard disk drives from two different companies – Seagate and Western Digital, the world’s leading manufacturers of hard disk drives. We obviously assumed their products would be of good quality – one didn’t even think of questioning it, just as you wouldn’t think of questioning Sony or Philips if you bought their screens to use in monitors.

  The PC2000 series was launched on 13 September 1988. It received a lot of interest from the European media and all our subsidiaries’ order books were full. To meet the promised delivery date of October, as we were running slow on the development side, we chartered a Korean Airlines jumbo jet to deliver the cargo in time for the winter season sales.

  Then we hit a snag. The PC2000 series used a certain type of D-RAM chip and we had problems starting production on some of the models because, like a couple of years before, the supply of D-RAMs completely dried up. Due to a general downturn in the market the previous year, the price of D-RAMs had bottomed out, so much so that many manufacturers gave up making them, as they’d ended up selling them at a loss. The only way to encourage manufacturers to produce them again was to start paying high prices.

  My next disastrous move was down to a knee-jerk reaction. I decided to take some money off the cash pile we’d amassed and buy a 9 per cent shareholding in the American D-RAM manufacturers Micron in exchange for them loosening up some of the supply to us. However, we then discovered it would take them several months to ramp up additional production to accommodate us, so by the time they were in a position to supply D-RAMs to us ad infinitum, we didn’t need them any more, as all chip-makers were now supplying freely again. This episode added insult to injury.

  Then, shortly after the PC2000 series hit the market, we started receiving complaints about hard disk drive errors on the 286 and 386 machines. Generally, when you hear the first one or two complaints, you think maybe the customer got something wrong, but the complaints started to increase, not only in the UK, but throughout Europe.

  It pains me to talk about this situation, so I want to be as brief as possible. We had to admit there was some unknown fault with our PC2000 series and we recalled the whole lot from the market. Imagine the disaster of such a move and the negative publicity it attracted, not to mention the effect it had on our share price. ‘At last,’ some of the sniping commentators said, ‘Amstrad stumbles!’ They were right.

  Further cracks were starting to appear. To be honest, the level of engineering we had back then was not capable of recognising the root cause of the problem. I made an assumption that it was all our fault – we’d been far too adventurous in trying to design our own hard disk controller chip. We were warned by the suppliers of hard disk controller cards that we’d be stirring up a hornets’ nest, that it was no simple thing to design. They said they had spent many man-years developing this technology and that Amstrad couldn’t do it on its own. So with these ‘I told you so’s ringing in our ears, Bob and I made the reasonable assumption that the culprit was our own hard disk controller.

  We sent samples of our products to Seagate and Western Digital and asked them to give an opinion as to why things were conking out. They told us, ‘It’s not our hard disk drives; it’s definitely this non-standard hard disk controller you’ve designed.’

  So the first phase of our attempted recovery of the PC2000 series was to disable our own hard disk controller and buy hundreds of thousands of hard disk controllers from the supplier who’d warned us not to go it alone. That supplier was Western Digital.

  We set up a production line at Shoeburyness and converted all the computers drawn back from the market, as well as all those on the way to us. On top of this, we sent thousands of hard disk controller cards to Orion in Korea, so that they could restart production.

  We relaunched the computer into the marketplace the following spring, apologising to our customers and telling them how we’d now fitted new hard disk controller cards and that everything was hunky-dory and back on track.

  Wrong.

  After the relaunch of the PC2000 series containing Western Digital’s hard disk controller cards, we were still getting complaints of hard disk failures. We turned to Seagate and Western Digital again. ‘What’s your excuse now?’ They told us that our box was too hot and the hard disk drive was overheating. The sad thing about this whole situation was that we did not have the engineering capability within Amstrad to look at this situation independently. We’d made the assumption that Seagate and Western Digital knew what they were talking about – they were the industry leaders in hard disk drive technology, after all. Surely there was no way the fault could lie with them, could it? It had to be something Amstrad was doing wrong.

  Eventually, one of our engineers, Bill Weidenauer, working closely with John Beattie and a few others, learned enough about hard disk technology to realise that a gigantic coincidence had occurred – both Seagate and Western Digital ha
d shipped us faulty hard disk drives! Who could have dreamt of that scenario? No wonder we thought that we were doing something wrong. We had poured good money after bad changing all the hard disk controllers and relaunching the product, only to find that it was their drives to blame. It was our misfortune that both suppliers had shipped us rubbish. If at least one of them had shipped us good stuff, we’d have known far earlier that the problem didn’t lie with Amstrad.

  I make no excuse for the fact that I was too focused on launching new products at the time. I didn’t give enough care or attention, or allocate enough funds, to building up an engineering department with more analytical resources in high-level technology. I wrongly thought that this would lead to having non-productive people hanging around. This was a big error. We were entering the 16-bit computer business. The philosophy of viewing a computer like a piece of audio equipment might have been fine in the early days, but now we were moving into territory where the technology was beyond the scope of the guys that had made us successful so far.

  *

  In the midst of these dark times, one positive event occurred. On 5 December 1988, London’s City University awarded me an honorary Doctor of Science degree in recognition of my so-called contribution to the information technology industry. It was a rather formal ceremony in a grand hall and all the students being awarded their gongs were present. They dressed me up in a long robe and I had to wear a large flat cap. I climbed the stage and said a few words about how honoured I was to receive this great accolade. I felt a bit out of my depth and was quite nervous, as I didn’t want to make a fool of myself by saying or doing the wrong thing during the ceremony.