Cipher Data’s New Tape Drives Must Buck Demurral by IBM

Cipher Data Products’ newly introduced 3000 line of tape drives, on which it has pinned much of its hope for growth, has all the right bells and whistles and has received favorable reviews from several prospective buyers and industry analysts. All of which makes it a cinch to succeed in the computer data-storage marketplace, right?

Not necessarily, say those same analysts. In fact, several described Cipher’s new line, which the company spent four years developing, as a high-stakes gamble. The new tape drive was displayed Thursday at San Diego-based Cipher Data’s annual shareholders meeting.

In its efforts to win market acceptance of the 3000i, Cipher Data is trying to set an industry standard in a market it once hoped to enter with International Business Machines’ seal of approval.

Introduced in August, Cipher Data’s 3000i product line is the first half-inch tape drive in its price range that features a removable tape cartridge. Over time, Cipher Data expects the product to replace much of its half-inch reel-to-reel family of tape drives, which last year accounted for 58% of its $185 million in revenue.

“Reel-to-reel tape drives are starting to decline. That’s true of the total market, not just of Cipher,” said Raymond Freeman, president of Freeman Associates, a Santa Barbara-based market research firm that tracks trends in computer peripheral sales.

Freeman and others see reel-to-reel systems as increasingly inadequate for data interchange and storage within the new generation of mainframe computers, work stations and computer networks.

The 3000i line of tape drives, which provide data interchange and back-up data storage capacity for work stations and mid-size mainframe computers, was developed in a joint program with IBM, the first such project for Cipher Data. The fruits of the development program included a proprietary recording technology called the multitrack serpentine recording (MSR) format that Cipher hoped would become the industry standard.

Industry observers expected the tape drive to be included in IBM’s new AS/400 series of mid-range computers, introduced earlier this year. Inclusion in the IBM system would have made Cipher’s new product line the de facto industry standard.

IBM Leads in Tape Drives

“Until recently, IBM has introduced every new tape technology that has caught on. If IBM would have blessed the Cipher technology, we would have had a new technology” for half-inch cartridge tape drives, said Jay Bretzmann, a senior market analyst with International Data Corp., a market research firm based in Framingham, Mass.

But when IBM wheeled out the new computer line earlier this year, the 3000i was not among the system’s approved data storage peripherals. The system used a quarter-inch tape drive manufactured by Tandberg instead.

In addition, in a move that puzzled some industry observers, IBM at the same time freed Cipher Data to begin selling the 3000i product to Cipher’s other original equipment manufacturer (OEM) customers, most of them IBM competitors. The move fed speculation that IBM was passing entirely on the 3000i.

“The (3000i) product was developed with the idea that IBM would introduce it as part of their system before Cipher could release it to the OEM market,” Bretzmann said.

Still a Good Customer

Denying that his company was disappointed by IBM’s decision not to include the 3000i in the AS/400 system, Thomas Anderson, Cipher Data vice president and treasurer, said Thursday that IBM often takes years to decide on which peripheral devices from outside sources to include in its systems. Anderson emphasized that IBM remains a good customer of Cipher’s, accounting for about 29% of the company’s fiscal 1988 sales.

Cipher has shipped evaluation units of the 3000i, introduced in August, to 13 of its top 16 customers and already has orders in hand for the product, Cipher Data Chairman Gary Liebl told shareholders at the annual meeting Thursday. “At this point, (the 3000i) is the most successful new product in the company’s history,” Anderson said.

Still, in the absence of a seal of approval from IBM, Cipher Data finds itself a somewhat lonely pioneer in a new area of technology.

“They are standing bare on their recording format, having to create an industry standard all by themselves,” Freeman said. “They may well be able to do it, but that’s a far more formidable task than what they did previously, which was to build reel-to-reel tape drives using IBM’s established format.”