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September 1997 Volume 7 • Number 9

Uncontrolled Execution

The strange saga of the Amiga ... by Philip S. Moore

As the creditors sit around the table, they consider the ever-worsening situation. For the umpteenth time a deadline has come and gone, and again a letter of intent faded away without a tangible offer.

At this point, it probably would have made sense to liquidate and take what they could get for the pieces, but Amiga is a going business generating a small profit. And given the magnitude of the disaster they are dealing with, the receivers don't want to throw away any opportunities, no matter how small.


Amiga -- the name was synonymous with innovation. Created in 1984 by a prototypical Silicon Valley startup company and absorbed by industry giant Commodore Business Machines, the computer offered a graphical interface and computing power equal to Apple Macintosh, as well as pre-emptive multitasking and a facility for mixing video, images, text and sound unmatched in the entire industry for almost another decade.

In addition, due to its use of a patented processor chip set and innovative operating system design, the Amiga could do all that with very little RAM. In an era when memory cost $100 per megabyte, this was an important advantage. Only 512 kilobytes of RAM would easily handle virtually every business and personal computing need. With only slight modification and under 2 MB of RAM, the Amiga became a "Video Toaster" capable of far-reaching "multimedia" applications.

Despite its technical superiority, however, Amiga was an also-ran in the world of personal computers. The technically primitive IBM PC, with an operating system only slightly improved from the original Altair 8080 personal computer, was the top seller for business applications. The Macintosh, technically sophisticated but still lacking important multitasking and multimedia capabilities, ruled the educational and graphic arts markets.

That left Amiga a few computer gaming fans it shared with Atari, which introduced the equally innovative XT computer systems, the video production market and a slender slice of the home/hobbiest market. It wasn't enough.


Sorting through the financial wreckage and tens of million of dollars in unpaid bills and unsold inventory, it was difficult to realize that just a few months before, Escom International had been Europe's largest electronics retailer with stores throughout the EC and Scandinavia.

Escom had looked like the answer to a prayer for the creditors of Commodore, finally at the end of an acrimonious and lingering death watch. Escom's flamboyant chief executive, Manfred Schmitt, vowed to put Amiga at the forefront of the new international personal computer market.

It was not to be. Escom was a mirage, built on debt. Seven months after coming to the Amiga's rescue, the mirage began to fade.


Amiga's fate was probably sealed by a man who left Commodore even before Amiga became part of that company: Jack Tramiel.

Born in Lodz, Poland, in 1927, Tramiel saw the arrival of the Nazis when he was 12 years old. Through determination and luck, he survived the Auschwitz and Bergen Belsen death camps to be one of only 970 of Lodz's 200,000 Jews to survive the Holocaust.

Virtually penniless, Tramiel arrived in New York in 1947, determined to make something of himself. By 1954, he started a typewriter repair business in the Bronx called Commodore Portable Typewriter. In 1956, he moved to Toronto and went into the manufacture of adding machines. That company was called Commodore Business Machines.

Admired and hated, often by the same people, Tramiel was frugal to excess and a relentless taskmaster. He worked his employees hard, paid poorly and aggressively negotiated with suppliers and distributors.

In 1966, when he needed money to expand, he made what would turn out to be a fateful move and sought out Canada's leading financier, Irving Gould. They were a good match at the time. Gould's hands-off investment style perfectly matched Tramiel's hands-on approach, and as long as the profits kept rolling in, everybody was content.

As the market for business machines changed, so did Commodore. First, Tramiel went into making pocket calculators, earning a large share of the market before being burned in the market collapse of the early 1970s. Next, he turned his attention to computers.

Tramiel saw a potential consumer market in the collection of hobbyist computers that followed the introduction of the Altair 8080 -- produced by another former calculator manufacturer -- and set out to design a personal computer that would be ready to operate, right out of the box, a novel approach at the time. That computer was the Commodore Pet.

The successful Pet was followed by the hugely successful Commodore 64 personal computer and a variety of other specialty models, and for a time, Commodore enjoyed a dominant position in the PC market. The company's success, however, was built on aggressive price cutting and a scorched-earth approach to resellers, whom Tramiel loaded with Commodore machines, then undercut their price with the same computers sold to mass-market retailers.

Bragging that Commodore made computers "for the masses, not the classes," he ignored the business market and vetoed development of a 16-bit computer to match the power of the Intel 8086-based personal computers.

He got away with it for a couple of years, but by 1983, Commodore 64 sales were declining and stopgap replacements, such as the Commodore 128, were not successful at shoring up the company's eroding market share.

By the Jan. 13, 1984 board of director's meeting, Tramiel could not provide the profits that Gould wanted, and would not offer a solution that Gould found acceptable. After a heated argument behind the closed doors of the meeting, Tramiel resigned from the company he created three decades earlier.

Gould needed a new company president, and following the example of Apple, he reached outside the computer industry and appointed Marshall Smith, a steel industry executive. Smith knew they needed a new computer to put Commodore back on track. He also knew the company was heading toward its first losses and couldn't wait to develop its own.

Smith needed to buy a dazzling new computer, and he needed it fast. He found it in a small facility outside San Jose. It was quaintly called the Amiga.


While everything else at Escom is falling apart, Petro Tyschtschenko knows what he has to do. Amiga Technologies division must keep going as if nothing is wrong with the parent company. To falter would mean shutdown, and for Tyschtschenko who had endured the liquidation of Commodore, another shutdown is unthinkable.

In May 1995, just a few months before, Tyschtschenko was chosen by Escom to be co-president of their new subsidiary, Amiga Technologies GmbH, in cooperation with Stefan Domeyer, co-president for finance, research and development and market communications.

Within weeks, everything was back on track, as if the Commodore bankruptcy had never happened. Over 40 people were working at the headquarters office in Bensheim, Germany, selling Amiga 1200s and introducing the new A4000T Amiga tower. The subsidiary was restoring old affiliations with suppliers and distributors, and expanding into the newly opened Eastern European market.

Yet, they hardly had a chance to get the office furniture in place before ugly rumors started to spread about Escom. Financial market analysts warned that the company was expanding too fast. Soon, it became apparent that the personal computer market did not do well during the Christmas season and Escom has an alarmingly large inventory of unsold machines.

Escom A.G. announced a $30 million loss in January. By February the loss is revised upward to $83 million and the German stock exchange suspended trading on the company's stock. A familiar scenario unfolds for the former Commodore people at Amiga Technologies. For a second time, Amiga is hostage to a bankruptcy.


For Amiga Corp. and Commodore, each was the answer to the other's prayers. Amiga Corp. was established in 1982 by Midwest venture capitalists hoping to cash in on the videogame boom. The company they created, Hi-Toro, was too late to take advantage of the boom before it went bust.

Instead, the company's engineers -- including Dale Luck, R.J. Mical, Bob "Kodiak" Burns and Carl Sassenrath, and led by the former top graphics chip designer for Atari, Jay Minor -- turned their attentions to developing the next generation of computing.

Renaming the company "Amica," Latin for "friend," they took a look at everything the personal computer was capable of doing, and set out to build their machine to accomplish them. Meanwhile, they were informed that another company had their new name, so they changed it to the Spanish version, "Amiga."

After two years, Amiga's staff had accomplished what they set out to do, but the next step -- manufacturing and selling the machines -- would require more money and they were broke. The venture capitalists faced the need for further investment and a longer wait for a return, if any.

Instead, to the dismay of Amiga's engineers who worried about Commodore's reputation for discount products, they sold out and Commodore welcomed the nearly complete Amiga and its staff with open arms.

On July 23, 1985 -- less than a year after the August 1984 purchase -- the Amiga 1000 was introduced at Lincoln Center to reviews labelling the machine "incredible" and "amazing." It out-Macintoshed Apple's Macintosh and made the IBM PC XT look like a dinosaur. The future for Commodore and the Amiga looked secure. Then the company fumbled for the first, but not last time.

It took three months for Amigas to begin arriving in the stores, losing a precious share of momentum after the introduction. Next, Commodore began posting quarterly losses and reacted by reducing advertising and sales budgets, crippling 1985 Christmas season sales.

These blunders were followed by an off-again, on-again relationship with the major computer resellers and mass marketers, such as Sears, denying the computer either the consumer market served by the retailers or business markets, served by the computer stores.

Smith saw little chance of turning things around and resigned in 1986, to be replaced by Thomas Rattigan, a former PepsiCo executive. Rattigan was fired a year later, escorted from Commodore's Philadelphia headquarters by security guards. He retaliated with a $9 million breach of contract suit. Next, former ITT executive Max Troy tried his hand as Commodore president and resigned less than two years later.

New models were introduced, such as the Amiga 2000, Amiga 500, Amiga 2500 and 3000. They all received good reviews but were dogged by Commodore's dismal reputation. As a result, sales were disappointing and Commodore's share of the personal computer market slipped from 26 percent to a meager 6 percent. Only European sales remained strong, but that wasn't enough to keep Commodore's stock price from slipping from $61 to $8 a share.

Gould, 70 years old in 1989 and living in the Bahamas to escape Canadian and US taxes, reached out again for somebody to turn around Commodore's declining fortunes. He selected former Dillon Read investment banker Mehdi Ali, naming him president. Ali didn't care about the Amiga or computers. He cared about keeping Gould happy and that meant creating profits, no matter what.

Starting in 1989, Ali began a five-year odyssey of cannibalizing Commodore, cutting budgets and staff and Amiga's already insufficient advertising and marketing operations in an attempt to keep the profits rolling in. Amiga's users and developers were fanatical in their support for the computer system, but they knew Ali was stealing the future to pay for the present.

The future arrived on April 29, 1994, when Commodore International Limited, the parent company, could no longer create profits through cutbacks and filed for liquidation in the Bahamas Supreme Court. Within hours, the company's employees were let go and the doors locked.


Tyschtschenko later described his experiences as "the most terrible times in my life." He personally pleads with the receiver to allow Amiga Technologies GmbH to continue to operate. His efforts are aided by a purchase offer on the table from the Chicago company, VIScorp, which was negotiating to license Amiga's proprietary technology before Escom failed, then switched its efforts to buying the whole subsidary.

Offering $40 million for Amiga Technologies, VIScorp plans to produce "set-top boxes" to offer computing and World Wide Web browsing over the television. Adding Amiga's distribution network makes the operation a valuable asset.

The receiver keeps Amiga alive until the deal can be completed and for a few weeks, VIScorp acts as if it already owns the company. The only thing remaining is final payment, and that is scheduled for Aug. 20, 1996. However, on Aug. 20, VIScorp executives ask for an extension until Sept. 20. On that date they ask for another, then another, now complaining that the price is too high.

By Dec. 2, 1996, VIScorp officially withdraws its offer, but not before Amiga Technologies' Co-President Domeyer and most of the key staff walk out and form their own company, PIOS, proclaiming that "the only chance to keep Amiga alive is a new start."

Another Amiga loyalist, peripheral maker Phase 5 of Germany, agrees and announces their own plans to produce an Amiga-compatible computer called "A/box".

Now only Tyschschenko and two staff members -- Axel Kraemer and Andreas Steep -- remain at Amiga Technologies. The three answer phones, open mail, run to the bank and do whatever it takes to keep the doors open.

"Thank God I could convince the trustee to not smash Amiga for the present," Tyschschenko comments. "With our sales, we can keep ourselves easily alive."

They do better than that. Sales in Europe are rising and a deal with the Norristown, Pennsylvania company Quikpak has brought the Amiga back to the US with sales of the A4000T and an upgraded version called A4060T.

If the receivers can settle the ultimate ownership issue, Amiga Technologies is ready to rebound. The situation awaits an angel and Quikpak steps in with an offer.

The trustee, leery after the VIScorp fiasco, welcomes the offer and sets a deadline for final settlement but does not count the company as sold. It turns out to be a good move.


Within days of Commodore's 1994 announcement, the company employees dispersed and the remaining assets were in the hands of the creditors. This should have been the end of the story, but a strange thing started to happen -- peripheral and software producers began to come forward, vowing their continued support for the platform.

First a handful, then dozens -- enough to keep the Amiga alive, at least for the time being. Instead of a quick death, it became a protracted waiting game, with everyone watching to see what the bankruptcy agreement would indicate for the future.

If the assets were auctioned piecemeal, then the chances that the Amiga would return were remote. If the company remained a single entity, then the story wasn't over.

Almost immediately, former Commodore staff members were hired by companies interested in acquiring the Amiga or its technology. As the companies indicated their interest in the Amiga, the creditors of Commodore began to see an opportunity to sell the company, not in pieces, but as a single package.

An agreement was reached for settlement of claims and a date was set for receiving offers for the entire assets of Commodore, including the Amiga. On that day, April 21, 1995, the offers were opened, and the winner was a German computer and electronics retailer, Escom A.G. The company looked like a perfect match.

The Commodore creditors were, if not happy, at least satisfied. The Amiga's community of users and suppliers thought the crisis was over, and the future looked assured.


North Sioux City, South Dakota is about as far from Germany as you can get, in miles, topography and mentality. Yet, in the executive offices of a giant South Dakota company, the future of Amiga was being decided.

Quikpak, despite its good intentions, cannot raise the purchase price by the deadline and again Amiga is heading toward the brink.

Time is running out for Escom's creditors and the the receiver. If the status of Amiga Technologies cannot be resolved in the immediate future, there will be no choice. The company will be shut down and the assets auctioned to the highest bidder.

This scenario is the subject of the discussions in the offices of Gateway 2000, the world's largest direct marketer of personal computers. It has become the topic of interest because Ted Waitt, co-founder and president of this Fortune 500 company, has decided that Gateway 2000 may want to reach beyond its traditional business of making well-liked but unremarkable IBM-compatible machines and acquire Amiga Technologies.

There is no question that Gateway 2000 has the money -- but does it make sense to spend it on the Amiga? Waitt thinks it does.

At first, all he wanted were the patents. The Amiga's multimedia capability is still an industry leader and combining that with Gateway's new entry into the set-top box market offers tempting technical opportunities.

However, the more he looks, the more Waitt believes that there is a future for the Amiga itself. "Amiga has some fantastic technology," he commented in an interview with Boot magazine. "But there might be a lot more than just a set of patents. There's the tremendous enthusiasm of the folks in the Amiga user environment."

On top of that, there is a company operating as a small but profitable concern and an overseas market that is gaining, not losing, ground.

For a man who decided that he could make computers in the middle of the Great Plains, in a town where the largest existing employer was a hog slaughterhouse, it all looks too tempting.


The tortured saga of the Amiga reached a sudden and surprising end on March 27, 1997 when Gateway 2000 announced its intention to purchase Amiga Technologies GmbH.

This happy turn of events startled everyone, including Amiga loyalists who had become more accustomed to bad than good news. They could not question Gateway's ability to meet the price, now down to about $16 million, but they wondered whether the company planned to close the company, take the patents, and move on.

It took only a few days for Gateway to put their fears to rest. On May 18, at a news conference prior to the opening of the World of Amiga Conference in London, Gateway announced the renamed Amiga International Inc., and vowed its commitment to the future of the Amiga computer.

On the platform was Jim Taylor, Gateway's senior vice president for global marketing, who noted, "It's exciting to know how much support Amiga continues to enjoy."

Joined by Tyschschenko, who remained president of the renamed subsidiary, Taylor vowed to support the Amiga community. "Every Amiga customer should know that we share their belief in this product and we believe that it has a strong role in our multimedia computing world."

Since then, Gateway has made good on its promises, agreeing to license Amiga's technology broadly and assist in developing new products based on an open standard. By expanding the number of companies in the Amiga business, even potential competitors, Gateway sees the opportunity to make the Amiga cheaper to produce, faster to develop and easier to upgrade.

Mostly, Gateway 2000 is offering the Amiga a chance to remake history. From a long, tortured path littered with mistakes and near success, the company now has the stability and credibility to fulfill its potential. For once, Amiga's enthusiasts promise, it's a chance that will not be missed.

About the Author

Philip S. Moore is a Camas, WA-based public relations consultant and computer hobbiest. E-mail to philip758@delphi.com.


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This article was originally published in the September 1997 issue of Computer Bits magazine, and is copyright © 1997 by Bitwise Productions, Inc., Forest Grove, OR, (503) 359-9107. All rights reserved. Disclaimer: Archival material is provided as-is. Links are not maintained.