Recording Heads, E Blocks Power Resurgence of CCT
Everett T. Bahre, chairman and chief executive of Computer & Communications Technology, had reason to be upbeat at the annual shareholders meeting last week. The San Diego company is apparently emerging from a long dark night of financial and legal problems into the daylight of double-digit growth and improving profits.
Just two years ago, CCT’s Zeta Laboratories unit was mired in an overcharging scandal with the federal government that nearly dragged the entire company down. The scandal brought on the rescission of CCT’s sale of Zeta to Whittaker Corp. and a shareholder lawsuit against CCT and its management.
That event, plus CCT’s discontinuance of its thin-film media product line, caused a 1986 net loss of $26.8 million on revenue of $75.3 million.
2 Successful Products
Today, the company is looking forward to a fiscal 1988 in which revenue may surpass $140 million, a better than 40% increase over last year. The increase, evidenced by the tripling of CCT’s order backlog over the last five quarters, is being driven by the success of two new product lines. Employees now total 4,000, more than twice the payroll of two years ago.
The Zeta dispute with the government has, for all intents and purposes, been settled as has the shareholder lawsuit, Bahre said. Zeta, which is a microwave equipment manufacturer, is for sale.
Although Bahre won’t estimate what CCT profits will total this year, he said in an interview Monday that the bottom line will “improve along with increased revenue over the second half of the year.” Profits for the second quarter to end June 30, however, won’t be much better, if at all, than for the first quarter during which CCT earned only $446,000, down from $697,000 over the same period last year.
Bahre attributed the first-quarter low profit, which came on revenue of $28 million, to the high start-up costs of several new CCT products.
Increased Computer Demand
Over the last two years, CCT and other companies in its industry have been lifted by the rising demand for microcomputers. CCT’s main products are recording heads--the ferrite or ceramic tips that read and write data stored on magnetic disks, a computer’s main memory storage device.
This year, disk-drive manufacturers will order 70 million recording heads, up from 60 million last year, said Dennis Waid, president of Peripheral Research Corp., a Santa Barbara based firm that tracks disk and tape drive industries. The market for recording heads will grow to 80 million units shipped next year, Waid said.
“The whole industry can pretty much sell what it can produce,” Waid said. He estimated that CCT’s sales may go as high as $160 million in 1988.
CCT now controls about 25% of the $500-million market for all types of recording heads, Bahre said, behind industry leader Applied Magnetics of Goleta, which has about 40% of the market. But CCT is the market leader in “composite” recording heads, a relatively new kind of head made of a ceramic substance called barium titanate that is preferred over ferrite by manufacturers of high-storage disk drives.
Demand for the composite heads is now the fastest-growing among all recording heads, boosted by computer users’ ever increasing demand for more data storage capacity.
CCT has also been an innovator in developing so-called “E blocks,” the monolithic sets of recording arms and heads that can accommodate from two to 16 recording heads and arms. The E blocks save disk-drive manufacturers the trouble of assembling the components while occupying half the space of other disk-drive designs.
Bullish on E Blocks
So bullish is CCT on the new product that Bahre expects E blocks to account for half the company’s sales by next year.
CCT’s main weakness is that it does not yet have a viable thin-film recording head product, Waid said, referring to the data recording technology still being perfected that has the highest possible data storage capacity available.
“It’s imperative because the technology is moving in that direction, and to be a full service supplier you have to get into those heads,” Waid said. “It is not as important today as it will be three or four years from now.”
Bahre, 51, said CCT will begin shipping a new thin-film recording head product later this year, employing a new technology called “metal in gap.”
Because of the intense competition within the disc drive industry, many manufacturers--including CCT--have moved operations offshore to take advantage of lower labor costs. For example, of CCT’s more than 4,000 employees, 1,600 work in Tijuana, 1,500 in South Korea, and 800 in Puerto Rico.
In fact, one motive in CCT’s acquisition last year of Acton Computer Technology, also a recording head manufacturer, was a desire for access to Acton’s 50,000-square-foot manufacturing plant in South Korea. CCT now uses the plant for composite head production and will expand it to 90,000 square feet this year. Acton accounted for about $30 million of CCT’s $98.8 million revenue last year.
