1989 Quotron Starts Slimming Down

Citicorp subsidiary Quotron Systems Inc. has sold off its customer engineering organization to privately held Phoenix Technologies Inc. for an undisclosed sum. The sale, which precipitated the usual slew of acquisition rumors, was announced by Quotron to its customer engineering staff in a July 14 teleconference.

Phoenix, a Valley Forge, Penn.-based supplier of business telephone equipment, will be the exclusive service organization for the installation and maintenance of Q800 and Q1000 customer sites as well as for the operation of the New York computer center. The computer center itself will continue to be owned by Quotron. The term of Phoenix’s contract with Quotron is three years, with two additional option years.

Under a recent ruling by the Federal Reserve Board, Quotron will continue to manufacture the Q1000. Quotron will also continue to staff and operate its new customer service call-in center in Los Angeles.

"There is just no alternative for us surviving," said Quotron president J. David Hann in announcing the reassignment of 600 of Quotron’s 2,600 employees to Phoenix.

The sale comes just one month prior to the expiration of Quotron’s contract with the International Brotherhood of Electrical Workers, whose Local #3 represents Quotron customer engineers in New York. Employees were told that compensation and benefits would remain substantially unchanged, and that Phoenix is "contractually committed to hire all CE employees."

Quotron is positioning the sale as a refocusing of resources on its "core businesses"—collection and delivery of market data, and development of associated applications. Explaining Quotron’s decision, Hann cites a move away from proprietary systems, a significant market downturn, and the loss of major customers. The loss of the Merrill Lynch & Co. and Shearson Lehman Hutton Inc. accounts to rival supplier Automatic Data Processing Inc. is expected to reduce Quotron’s global screen count from an estimated 100,000 to fewer than 70,000.

The customer engineering operation, according to Hann, is diverting Quotron’s resources and attention from its strategic mission. Technological changes and pressure from customers for more cost-effective solutions point to "a decreasing role for customer engineering," Hann says.

Quotron’s Unix-based Q1000 minicomputers are being upgraded with a new operating system that will allow many of the service and maintenance tasks formerly handled by customer engineers to be performed remotely. In addition, sources say that this fall Quotron will introduce new client systems technology based on an IBM PS/2 AIX platform. So Quotron will need fewer customer engineers to service existing Q1000s and, both near- and long-term, there will be fewer Q800 and Q1000 users to service.

The sale of Quotron’s customer engineering organization solves a number of problems for the embattled quote vendor. It reduces Quotron’s fixed costs at a time when revenues are expected to decline due to the loss of major accounts. And it insulates Quotron from the problem of downsizing a unionized field service organization.

While Quotron claims its customers will experience no "immediate change in the level of service," some observers question the wisdom of spinning off a field service organization.

One Quotron customer, who asks to remain nameless, says that with sales and service under the same roof, the sales force motivates the service organization. Without that pressure, he says, quality of service may decline.

Many customers say Quotron’s quality of service to its embedded base of terminals is excellent. But they note that installation and removal servicing has fallen off. Speaking at a user group meeting last December, Quotron executive Dan Sadler acknowledged that the installation and removal situation was "unmanageable."

As a participant in a similar field service spinoff at GTE Telenet in 1983, Quotron’s Hann is familiar with the pros and cons of the customer service argument. Hann presided over the sale of GTE Telenet’s field service organization to a group of Telenet executives. Named MTTR Inc., the company’s main clients were customers of GTE’s financial information services network.

Shortly after MTTR was spun off, GTE’s financial information business was acquired by ADP. Later, ADP acquired MTTR as well, folding it into the Brokerage Information Systems Group. Sources say ADP bought MTTR because its clients didn’t think they were getting the same level of service from the third-party organization.

Quotron says the sale of its customer engineering operation is not a prelude to the sale of Quotron or the first step in a piecemeal auction of Quotron’s assets.

The sale of its customer engineering staff to Phoenix may buffer Quotron management from negotiations with organized labor. But Quotron must also protect its customers from service disruptions that could arise in the context of collective bargaining.

Some Quotron customer engineers express skepticism about Hann’s explanation for the sale. "Their explanation was that they couldn’t handle the service part of the business and the database part of the business at the same time. If they can’t handle it, how is Phoenix going to make a profit selling our services back to Citicorp at the same price that Citi was paying for us in the first place?" asks St. Louis.

A Quotron spokesman declined to answer any questions about the sale.

Follow-Up: Quotron’s efforts to reduce costs continued in the second half of 1989 as it struggled with a slump in equities trading and aggressive competition. Quotron was eventually bought by Citigroup, which then sold it to Reuters (see 1994).