Psion, the British technology business best known for its handheld computers, will emerge from its restructuring as a different animal focused on serving the industrial market. Its days of selling high street handheld gadgets are numbered and its dreams of making the next generation of consumer gizmos have been shattered.
The restructuring announced yesterday will see its consumer handheld computer business, founded by David Potter in 1980, stop developing new products. Existing Psion devices, which have faced stiff competition from Palm, Handspring and Compaq, will be sold until they become obsolete. Its card modem business is also at risk and will only continue as long as there is a market.
Another 250 jobs are to go, on top of the 100 already announced this year, leaving Psion with a workforce of around 1,000.
For followers of Psion, this is no surprise. David Levin, the company's chief executive, was brought in two years ago with the remit of revitalising the business. What is surprising, is the speed of the transformation, provoked by the economic downturn and stockmarket decline; something that has caught even Mr Levin offguard.
"I wish I'd seen just how quickly the downturn was going to come. We didn't see that. We saw it coming but we didn't think it'd be of this magnitude," he said yesterday.
When tech stocks were in vogue last year, Psion had great plans to become a business at the cutting edge of the mobile phone revolution. Instead, the past 12 months have seen it retrenching. In May, it shut Trivanti, its mobile internet services joint venture with United Business Media, a business that was only set up in July last year. It also abandoned its smartphone project after its partner, Motorola, pulled out.
"It's incredibly disappointing for us to be having to do this [restructuring] and that I feel very personally. Business-wise it's clearly the right decision," Mr Levin said.
By the end of the year, the bulk of Psion's sales will come from Psion Teklogix, a combination of an original Psion business, which sold handheld devices to the industrial market, and its acquisition of Teklogix, which sells hardware and software to help companies monitor their supply chains.
"They've done the right thing," said Keith Woolcock, an analyst at Nomura, adding: "They've excised the cancer."
But while Psion may be struggling in the current bear market, the company rode the bull market to perfection. It undertook a massive share placing in March last year at the peak of the internet bubble when its stock was trading as high as £14. That well-timed exercise raised it around £100m after expenses, the bulk of which was spent on buying the Canada-based Teklogix for £242m.
Psion was also quick to see the opportunity to make its computer operating system the engine of choice in the mobile handheld market in a move that put it head-to-head with Microsoft.
But while Symbian, the business it set up to exploit that opportunity, won investment from Nokia, Ericsson, Motorola and Matsushita, delays in the roll-out of next generation mobile phone technologies and handsets have left it waiting in the wings, still to prove itself. Had Symbian been floated at the peak of the technology market, some analysts believe it could have commanded a £5bn to £7bn price tag, valuing Psion's 28 per cent stake at £1.5bn to £2bn.
Shares in Psion closed down 1.4 per cent at 70p yesterday, valuing the whole company at just £290m. Analysts now reckon a more realistic value for its Symbian stake is around £170m, which is already fairly reflected in the share price.
While Mr Potter is said to be upset at the demise of the core business he founded, he is wholly supportive of the move. "The IT industry is experiencing its worst downturn since 1985. Against this background, it is essential that we take the hardest approach to costs," the Psion chairman said.
The restructuring will cost the company £29m, of which a third will come off its cash pile. That will leave Psion, which has no debt, with around £7m cash.
Not all of Psion's problems can be attributed to the downturn, however. Psion created a recognisable UK brand with its handheld computers, particularly its new breed of "clam-shell" style organisers. But it failed to successfully launch them into the US and globalise the Psion brand name.
Nevertheless, with the IPO window for Symbian now shut, Psion's attention is focused on Psion Teklogix, a business it overpaid for but which is proving its saving grace even though it too is coming under pressure. In 2000 it recorded a pre-tax profit of £14m on sales of £93m.
"Fundamentally, it [the market for Psion Teklogix] is rather good. The basic proposition is sound and that business should see continued growth," Mr Levin said. "Right now the IT slowdown has slowed its growth but it hasn't stopped its growth."
Psion is also planning to exploit its remaining intellectual property and to continue to innovate. Mr Levin has high hopes for its Signa Services business which installs wireless networks in companies.
"As a business, we look rather different than we did two years ago. I'd love to say it was all by design. We've lived through an incredible technology bubble and now we're in a most amazing technology slump," Mr Levin said.