Micropolis Puts Faith in Its Drive, Not Its Laurels

Times Staff Writer

Despite running a company that is frequently described by outsiders in superlatives, Micropolis Chairman Stuart Mabon doesn't care to listen. Mabon wants to avoid an occupational hazard.

"The trick is to stay humble and keep hustling," he said. "Or you start to think you are immortal."

That isn't to say the Scottish-born engineer lacks faith in the Chatsworth-based company's ability to keep growing and continue dominating its lucrative niche of high-speed computer disk drives, which store and retrieve data for computers.

Last year, Micropolis turned in one of the computer industry's stellar performances as its sales more than doubled to $218.1 million, while profit quintupled to $18.3 million. Micropolis' stock has also climbed. It closed yesterday at $31.375, up from a low of $8.875 early last year.

But, in the computer business, yesterday doesn't mean much. The stock market cares about tomorrow. Micropolis' investors are sure to ask what it plans for an encore.

New Generation of Drives

The answer, Micropolis hopes, is a new generation of disk drives that it started selling late last year. This product transition is vital to Micropolis because 90% of its sales last year came from a different product, its venerable 85-megabyte disk drive.

Steven L. Ossad, who follows Micropolis for L. F. Rothschild, Unterberg, Towbin in New York, said he is concerned because Micropolis' fourth-quarter revenue fell 7% from the third quarter. This is a sign, he said, that sales of the company's old disk drive are slowing.

The disk drives Micropolis makes are the size of a small shoe box and, once installed into a computer, can magnetically read and write information on rigid, spinning platters 5 inches in diameter. The process is analogous to the way music is recorded and played back on a tape recorder. Micropolis' 85-megabyte drive can store up to 85 million characters.

But the company is now selling a new, more powerful group of 170-megabyte drives that can store twice as much information in the same amount of space. Micropolis is hoping that the 170 model will produce 40% of its sales in 1987.

Micropolis' disk drives usually end up in sophisticated scientific and engineering minicomputers and so-called multi-user systems in which several people work on the same computer system. The systems are made by such leading firms as Digital Equipment Corp. in Maynard, Mass., and Sun Microsystems in Mountain View. Customers for these minicomputers, often engineers, have an insatiable appetite for storage capacity, and therefore disk drives, in order to produce sophisticated computer programs and graphics.

380-Megabyte Version

That's why Micropolis is already planning to introduce an even more powerful 380-megabyte version for later this year, and 760-megabyte drives in 1988.

Some analysts believe the transition to the new products may be hard. Micropolis will be competing against much larger companies that make disk drives, such as Minneapolis-based Control Data and Japan's Fujitsu and Hitachi. Nonetheless, Micropolis has plenty of boosters.

"There are damn few companies around that could produce drives the way Micropolis has done it. We've had lots of failures from companies that have tried it," said James Porter, president of Disk/Trend Inc., an industry market research firm in Los Altos.

Securities analyst James Stone of Shearson Lehman Brothers believes Micropolis will easily make the transition.

"A manufacturer really does not change as long as you give the guy the product he wants at a reasonable price, reasonable quality and provide reasonable service. Micropolis owns the customer base, and all it has to do is provide them the next generation," Stone said.

Mabon is confident the company can overcome any engineering, technical and manufacturing hurdles as it moves into new production of disk drives. Beating last year's financial performance will be hard, Mabon acknowledges, but he still hopes to better the 25% growth predicted by analysts for the disk-drive industry in 1987.

Analyst Stone further notes that, although Micropolis is shifting to another product, its 85-megabyte drive could keep selling for another five years.

Micropolis is tapping a new market for the product by selling to middlemen, who then resell the 85 model to personal computer users who want to increase their machine's storage capacity. Mabon has also cut manufacturing costs on the 85 model by shifting production to Singapore.

Another problem for Micropolis has been its reliance on its biggest customer, Digital Equipment. DEC's powerful minicomputers have been extremely successful in the marketplace, to the point that, a year ago, orders from Digital made up nearly half Micropolis' revenue.

Depending on one customer is dangerous, Mabon acknowledged, so Micropolis diversified. It now sells to such major companies as: in Massachusetts, Wang Laboratories in Lowell, Apollo Computer in Chelmsford, Data General in Westboro; Hewlett-Packard in Palo Alto and major European companies such as Italy's Olivetti and Siemens of West Germany. As a result, DEC makes up only 15% of Micropolis' sales today.

Mabon, 49, and his partners founded Micropolis after he left Pertec, a Chatsworth company that was a pioneer in the data-storage business. Mabon, whose 3.5% of Micropolis' stock is worth about $12 million, came up with the company's name because he liked having a reference to computers and the word city in the name. In ancient Greece, a polis was a city state.

Large Chatsworth Contingent

Mabon has built what amounts to a small city in Chatsworth, an area where high-tech expansion has become rare because of the computer industry's slump. The company's number of employees has more than doubled in less than two years, to 1,550 worldwide, including 1,100 in Chatsworth.

Mabon said the old management system was fine for a $50-million company, which Micropolis was in 1983, but is inadequate today. To try to cope with the rapid growth, Mabon has set up a committee to overhaul the company's operating procedures. It is also setting up an electronic mail system to link the company's offices worldwide. And a new, $1.5-million computer system is being installed to track quality-control problems in manufacturing.

There is the temptation, he said, to move into other products. For example, the manufacture of disk drives for personal computers, a highly competitive area dominated by the Japanese and a few successful U. S. companies such as Seagate Technology.

But to keep thriving, he said, Micropolis must stay focused on what it does best.

"The biggest job I've got now is to stop things," he said.

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