Optimem Disk Staff, Research Pared Sharply by Cipher Data
The president of Cipher Data Products’ Optimem optical disk drive subsidiary has resigned amid deepening losses and layoffs of 10% of the Sunnyvale-based operation’s work force, the parent company has disclosed.
Asked why Peter Lloyd’s resignation early this month was not announced, a Cipher Data spokesman said: “We don’t announce resignations.”
In addition to the layoffs, Optimem’s research and development budget has been cut and the company’s marketing focus changed, Cipher Data executives said.
As are several other U.S. and Japanese disk drive companies, Optimem is trying to develop an “erasable” optical disk drive, one that can be re-recorded and re-read several times, similar to the magnetic disk drives used in most computers now. Optimem already markets a 12-inch write once, read many times (WORM) optical disk drive that cannot be re-recorded.
The development of a marketable erasable disk drive has taken longer and cost more than Cipher Data and other manufacturers expected. Optimem’s problems seem to be related to developing a reliable and affordable disk, Cipher officials say. Optimem and Minnesota Mining & Manufacturing formed a joint venture last summer to develop the disk.
High research costs combined with lower than targeted revenues are responsible for the red ink at Optimem. Optimem’s operating loss for the fiscal year ending June 30 will probably total $3.6 million on sales of about $10 million, Cipher Data President Gary Liebl said in an interview. At the time of the acquisition, Cipher Data said it hoped that the subsidiary might lose only $2 million in 1987 and post sales of $15 million.
“The losses were much greater than expected, and so it was appropriate to make a management change,” said Paul Evans, an analyst and vice president of S.G. Warburg in San Francisco. “But the technology is still in the early stages and bound to be a bumpy road for the pioneers.”
Sony Corp. of America said last week that it has solved the disk media problem and will begin shipping sample 5-inch erasable “magneto-optical” disk drives in October, with full-scale shipments to begin in 1988. Sony’s new disk drives do not allow access to data as quickly as Winchester disk drives do, a decided disadvantage versus existing technology, Sony advanced technology director Yoshio Aoki said.
But Sony’s announcement is significant because the sample drives will be the first “commercialized products for erasable disks,” Aoki said. Sony’s disk uses a turbium cobalt compound which can be recorded on and erased as many as 10 million times, Aoki said.
Maxtor, a San Jose-based disk drive manufacturer, said last week that it will begin shipping an erasable optical 5-inch disk drive in 1988 in partnership with Ricoh Co. Ltd. of Japan.
Gordon Knight, Maxtor’s director of optical technology and a top-level Optimem executive until he resigned in June, said another issue facing the optical disk drive industry is that manufacturers have so far been unable to agree on certain design specifications, called “formats.” Sony’s announcement was good news for Maxtor, Knight said, because its new product will use the same data tracking and focusing format as Maxtor and most other Japanese manufacturers.
Optimem so far is following its own data tracking and focusing format and has refrained from joining one of the two format “camps” with opposing technologies, Knight said.
Cipher Data had said Optimem might introduce an erasable optical disk drive sometime in 1987, a projection the company is now backing away from. The company has reduced the erasable product’s research and development budget significantly while shifting its emphasis to the 12-inch WORM disk drive already on the market.
In defending Cipher Data’s $6.3-million acquisition of Optimem last July from Xerox Corp., Liebl said Cipher Data has no plans to discontinue or sell Optimem.
“We still think it was a good strategic move. Up to now we provided Optimem with guidance but pretty much left its management alone to run it. We don’t feel they have executed strongly enough,” Liebl said. Craig Turner, formerly head of Cipher Data’s reel-to-reel business group, is acting Optimem president.
Don Sinsabaugh, a managing director of Swergold, Chefitz & Sinsabaugh investment bankers in New York, is pessimistic, saying Cipher Data may give Optimem another year to become profitable before “taking a write-off” and discontinuing or selling the subsidiary.
“Coming from another industry sector as Cipher does puts them at a disadvantage,” Sinsabaugh said. “The companies that have been successful at bringing new technology to market have been stand-alone companies not involved in other sectors.”
Alan Griffiths, Cipher Data’s vice president of marketing and business development, said Optimem’s marketing focus will change to its existing WORM products because “those are the products that are available and generating some revenue,” Griffiths said.
Analysts have estimated that Cipher Data’s fiscal 1987 net income will be between $6.5 million and $5.7 million, or 40 cents to 45 cents per share.
“We have no problem with those estimates,” Liebl said. Cipher Data revenues will be $185 million to $195 million. For fiscal 1986, Cipher Data reported $7.2 million net income, or 50 cents per share, on revenues of $163 million.
Employment at Optimem’s Sunnyvale plant has been cut to 113 from 130 over the last several months, Liebl said. Cipher Data has cut its staff across the board to less than 2,000, compared with 2,500 in June. Most of the job cuts occurred at Cipher Data’s Garden Grove assembly plant, where all but 100 of 700 workers have been laid off. The Garden Grove plant will shut down entirely by June, Liebl said.
CIPHER DATA Net Income for Fiscal 1986: $7.2 million Revenues for Fiscal 1986: $163 million. Work Force in June, 1986: 2,485 Anticipated Net Income for Fiscal 1987: $5.7 million to $6.5 million Anticipated Revenues for Fiscal 1987: $185 million to $195 million Work Force in March, 1987: 2,000
