Tandon, which last week reported a second-quarter loss of $19.9 million, appears destined to suffer another loss this quarter and will have to scale back operations and cut costs sharply to start turning a profit again this year, analysts said Monday.
Although Tandon has suffered from the widespread slowdown in the personal computer industry, analysts said they were mildly surprised by the size of the loss that the company reported last Friday.
Tandon, a Chatsworth-based manufacturer of disk drives for personal computers, reported sales for the second period ended March 29 of $61.1 million. During the same period last year, the company posted a profit of $10.4 million, or 21 cents a share, on sales of $105.7 million.
Slumping Sales Hurt
Analysts said Tandon, which has posted losses for three consecutive quarters, continues to be hurt by slumping computer sales and low-cost overseas competition. They said the company also has suffered from decisions by IBM, which had been Tandon’s biggest customer, to cancel some orders and to buy disk drives from competitors.
A disk drive is a device that rotates magnetic disks so that information can be stored and retrieved.
Aharon Orlansky, an analyst with Sutro & Co., said a major new order from IBM would be needed to bring Tandon back to profitability this year.
Other analysts, however, were slightly more optimistic. They predicted that Tandon could start making money again as soon as its fourth quarter if it cuts expenses and curtails operations.
“Just as you have to build the company up to do business at a high level, you’ve got to tear it down to do business at a lower level,” said Ronald E. Elijah, an analyst with Montgomery Securities in San Francisco.
“I think it’s going to be a rough road for them,” added Thomas Rooney, an analyst with Donaldson, Lufkin & Jenrette in New York. “And, as long as the industry is in a slump, the rougher it’s going to be.
“They’ve got to shrink the company and find some profitable niches to get into,” Rooney added. “They can’t be the high-volume, low-cost producer they were in the past.”
Tandon officials said Monday that they are already cutting costs by closing plants and consolidating operations. The company makes many of its products in Singapore but also has plants in Chatsworth, Thousand Oaks and Simi Valley and in Northern California.
Ranjit Sitlani, a Tandon vice president, declined to forecast whether any employees would be laid off locally. He said the company’s employment in Southern California has hovered around its current level of 1,127 for the last year. He said overall employment stands at about 3,500, down 500 from six months ago.