Product for Multiuser Systems Has Few Rivals : Micropolis Finds Niche in Disk Drives
At long last, Micropolis Corp. may be sitting pretty.
For most of its eight years, the Chatsworth-based disk-drive company has scrambled to stay narrowly ahead of the blistering competition and erratic market conditions that have crushed many of its counterparts. The company’s profits have been slim and its growth modest.
Now, however, Micropolis executives and many analysts believe that the company is in a position to boost its earnings and expand in a big way. The reason is that Micropolis apparently is on the verge of achieving a longtime goal--becoming a leader in a promising, relatively uncompetitive pocket of the disk-drive industry.
“They’re in the right market,” said David P. Vellante, a research analyst with International Data Corp. in Framingham, Mass. “Someone is going to make some money here.”
Micropolis is one of a small group of companies making high-speed, high-storage-capacity disk drives, which store and retrieve information for computers. Its drives are used by a budding “multiuser” segment of the computer industry, which consists of small minicomputers and personal computer networks on which from two to 15 people--and occasionally more--can work at the same time.
Array of Obstacles
But before fat times arrive at Micropolis, the company will have to overcome an array of obstacles. Perhaps foremost, the company must learn to mass produce its disk drives cheaply and without the sort of manufacturing foul-ups that have haunted it and others in the industry.
Micropolis also will have to head off the competition coming from Japanese electronics giants Fujitsu and Hitachi. And, to avoid being overtaken by others in the crowded disk-drive business over the next several years, Micropolis will need to keep blazing a trail in the development of more advanced disk drives.
For now, Micropolis has big contracts with many of the strongest minicomputer companies, including Digital Equipment and Data General. Although Micropolis is believed to do little or no business with International Business Machines, some industry experts consider that a blessing.
Most suppliers that have relied heavily on business with IBM ultimately faltered when the computer company abandoned them. For instance, Chatsworth-based Computer Memories announced Monday that its contract with IBM, whose business accounted for 81% of its revenue in the latest quarter, would not be renewed. Moreover, although IBM appears destined to play a growing role in the market that Micropolis serves, its position there is much smaller than it is in the mainframe computer and the personal computer businesses.
Stuart Mabon, the 47-year-old executive who has headed Micropolis from its beginning, has kept the company on a narrow course.
“The secret of success when you’re a small company like ours is to try not to do too much,” said Mabon, a white-haired, professorial man who speaks with a lilt that reflects his upbringing in Scotland.
“It’s very seductive when you’re an engineer to try to do a lot of things.”
The main strategy followed by Mabon and the three other engineers who left Pertec Computer in Chatsworth to establish Micropolis was to focus on higher-capacity disk drives. Mabon said they took that course because all of the founders knew more about designing sophisticated new products than about mass producing run-of-the-mill but high-selling products.
Early on, Micropolis, which now employs 754 workers at its headquarters and plant in Chatsworth, found itself in a hot market. It produced floppy disk drives, which store information on inserted disks.
The company started making money almost immediately. In fact, during its first three years, Micropolis enjoyed the fattest profit margins--the percent of sales representing profit--in its history.
Shifted Product Lines
In 1980, however, Micropolis began pulling out of the floppy-disk-drive business and started making hard disk drives. Hard drives, which tend to be faster and to store more information than floppy drives, use disks that are sealed inside the component.
Mabon said Micropolis changed direction because company executives could see that the floppy-disk-drive business would become more competitive and more dependent on large-scale manufacturing expertise than on engineering skill.
With that move, Micropolis avoided the disasters that befell companies such as Chatsworth-based Tandon. That company, one of the nation’s largest disk-drive makers, last week reported its fourth consecutive quarterly loss, a deficit of nearly $15 million.
Micropolis itself lost money in 1980 and has posted skimpy profits ever since. The company found itself on a treadmill, never able to enjoy substantial profits because it constantly was forced to spend heavily on developing new products to keep up with the competition.
Last year, its sales rose 14% over the year before to $60.1 million, but profits fell 77% to $819,301 as the company stepped up production of its latest line of disk drives. The company lost $411,000 on sales of $16.1 million during the first quarter of this year, and then recovered in the second quarter with profits of $485,000 on sales of $20.1 million.
Management Is Key
“A company making money these days has got to be a well-managed company,” said Vellante, the International Data analyst.
Vellante estimated that Micropolis has garnered 1.5% of the worldwide disk-drive market and 30% of the segment of the disk-drive market in which it competes.
Mabon predicted that Micropolis’ sales and profits will climb at least 40% this year and next. Although most analysts are not quite so optimistic, they say the anticipated demand for Micropolis’ drives should keep the company on an upswing.
Industry consultant James Porter, president of Los Altos-based Disk/Trend, predicted that Micropolis should fare especially well because it will not have to bear major retooling costs to make its new generation of disk drives.
Micropolis’ main product currently is an 85-megabyte, 28-millisecond drive, one that stores up to 85 million bytes, or basic units of computer information, and can retrieve information in 28-thousandths of a second. It is developing a 170-megabyte drive that it plans to begin shipping to customers next year.
Analysts are unsure, however, about how long Micropolis can maintain its momentum. In the past, disk drives have gone from being trendy to passe in as little as 18 months.
Have to Move Fast
“It’s really a question of how quickly management can move in a rapidly changing market,” said Jonathan Art, an analyst with Gartner Group in Stamford, Conn.
Thomas Lord, an analyst with Johnson, Lane, Space, Smith & Co. in Atlanta, said he considers Micropolis one of the nation’s best disk-drive companies. But he predicted that its ability to make money over the long run will be hampered by its “limited product line and limited financial resources.”
In addition, industry experts say that, even though Micropolis’ segment of the disk-drive market is less competitive than other parts of the business, the emergence of new competitors will shave profits.
An analyst who asked not to be identified raised questions about Micropolis’ skill as a manufacturer. The analyst cited the company’s failure for three weeks last year to detect a design change in components that it was receiving from a supplier.
The change made Micropolis’ disk drives vibrate and produce errors. Costs climbed and shipments were delayed until the problem was corrected.
Mabon, however, dismisses any doubts about the quality of manufacturing. He said Micropolis keeps a closer eye on production and responds to customers’ demands quickly because the company assembles all of its disk drives in Chatsworth. Many other disk-drive companies do their manufacturing at plants in the Far East, and even Micropolis buys its components overseas.
