The postmodern building that houses AT&T's microelectronics division is obscured from view by the thick forests of suburban New Jersey, and to some it once seemed an apt metaphor: for much of the 1980s, the unit was really lost in the woods. It was expected to lead AT&T's charge into the computer business, but its microchips sold poorly because they were overpriced, and the company's first commercial computers -- from PCs to a midsize system -- were flops. With losses topping $3 billion, AT&T was forced to pull back from the market. Says William Warwick, president of AT&T Microelectronics: "We were naive. We thought our name and reputation would open doors. They didn't; we learned a very painful lesson."
But today the atmosphere at the New Jersey outpost is crackling. Rather than worry about their jobs or fret about the future, workers walk the corridors smiling and high-fiving each other. AT&T Microelectronics is now a leading source of computer chips used in cellular phones, modems, disk-drive controls and fiber-optic communications. Sales surged about 50% last year, including a 90% increase in Japan and a 110% jump in Europe. AT&T's computer business is in the black and ranks No. 7 in sales, coming up fast behind such world-class firms as IBM, Fujitsu and Hewlett-Packard.
This week AT&T will win the competition to market the first hand-held computer when it rolls out its highly touted Personal Communicator 440. Part computer and part cellular telephone, the $3,000 machine -- based on AT&T's Hobbit chip for portable devices -- will let users send faxes and electronic mail by writing on the small display screen with a special pen. It will also transmit and store voice messages as well as make cellular phone calls. Designed and manufactured by EO, a new Silicon Valley company that is 50% owned by AT&T, the Communicator will have a head start on several rivals expected later in the year, including Apple Computer's similar Newton model and Motorola's Dragon. To celebrate, Warwick gave the team that developed the Hobbit a symbolic gift: a desk clock. "It was to remind us that we received our wake-up call," he says.
The sudden success of the microelectronics division is just one sign of the emergence of a new AT&T. While many large corporations such as IBM and General Motors are struggling to remake themselves, AT&T has apparently pulled off one of the most remarkable makeovers in U.S. corporate history. Although traditional long-distance service still accounts for 62% of its revenues, AT&T is no longer just a telephone company. Through acquisitions and homegrown start-ups, it has transformed itself into one of the most powerful -- and feared -- players in information technology.