PerfectData Drops Sale of Floppy Disks, Cites Downturn in Industry

PerfectData, a Chatsworth-based manufacturer of computer supplies that began losing money shortly after it got into the floppy-disk business two years ago, announced Monday that it would stop selling floppy disks.

The company, which marketed Polaroid-brand disks in seven Western states, attributed its move to the downturn in the computer industry. PerfectData said that the slump has caused cutthroat price competition among sellers of floppy disks, the magnetized platters on which personal computers store information.

Richard Brounstein, PerfectData’s chief financial officer, said that Polaroid’s most popular floppy disk retails for $4.50. That contrasts with prices as low as $1 being offered for comparable disks by some mail-order distributors, he said.

Under the agreement, Polaroid shipped disks that it manufacturers to PermaByte Magnetics in Chatsworth, a company PerfectData helped start in 1983 with a $1.6-million investment. PermaByte would finish and package the Polaroid disks, and turn them over to PerfectData for distribution in California, Washington, Oregon, Nevada, Arizona, Hawaii and Alaska.

Sell Off Inventory

Brounstein said that PerfectData will sell off the $1 million in inventory of disks that remains and that the company expects to post a “major loss” in its second quarter that ended Monday. He said PerfectData, which has about 60 employees worldwide, does not expect because of the decision.

Most of the quarterly loss, Brounstein said, will come from an accounting adjustment based on the discount at which the remaining disks are expected to be sold. He said the adjustment, or write-off, would increase the company’s loss by at least $1 million.

There could be an additional write-off if the company sells its interest in PermaByte, Brounstein said. PerfectData still owns 58% of the private company.

PerfectData, which primarily makes computer cleaning and maintenance supplies, launched the floppy-disk project two years ago, but the products didn’t reach the stores until March because of delays. Don Sinsabaugh, a managing director with Swergold, Chefitz & Sinsabaugh investment bankers, which has done work for PerfectData, said that PerfectData’s decision to pull out of the agreement makes the company more attractive as an acquisition.

Interest Rekindled

PerfectData’s losses from the floppy-disk venture helped prompt Westlake Village-based Bishop Graphics in August to scuttle an agreement to buy PerfectData. Bishop Graphics President Martin J. Salvin said PerfectData’s decision has rekindled his interest in acquiring the company.

Brounstein said the company may sell its stake in PermaByte now that it has decided to stop selling the disks, but added that the company has received no offers. In Cambridge, Mass., Polaroid spokesman Samuel Yanes said the company is not planning to buy PerfectData’s share of the company.

Yanes said Polaroid was disappointed with PerfectData’s decision. “We would have preferred to have them continue. From our point of view, it’s now a question of finding distributors in the West, which we don’t think will be too difficult,” he said.

PerfectData posted a loss of $1 million on sales of $6 million in the fiscal year ended March 31 and a loss of $695,000 on sales of $1.3 million in the first quarter ended June 30.