Cipher to Lay Off 11% of Work Force; 150 in S.D. Affected

In an unusual announcement, Cipher Data Products said Tuesday that it is laying off 220 employees, or 11% of its work force, because the company’s improved productivity makes them unnecessary. The layoffs will affect 150 employees in San Diego, where the manufacturer of computer tape drives is headquartered, and 70 in Singapore.

Cipher Data said no bad news, past or impending, played a role in the decision to reduce the payroll. The cuts will be implemented over a six-month period beginning in January and could save the company $3.8 million or more in annual overhead expenses.

However, Cipher Data did say its sales are expected to level off over the next two quarters or so and that the cutbacks might have been unnecessary had the company anticipated a better growth rate.

Layoff Targets

Nearly all those being laid off will be manufacturing employees. Sales and distribution staffing will be unaffected, although a “small amount of engineers” in San Diego will be let go, said Thomas Anderson, treasurer and vice president. The employees losing their jobs were informed Tuesday, he said.

Sales of Cipher Data’s half-inch, reel-to-reel tape drives, a line of computer memory storage devices that accounted for 58% of the company’s sales last year, have been slower than expected this year. But the slowdown was “not a driving factor” in Cipher Data’s decision to cut jobs, Anderson said Tuesday.

The manufacturing operations being shut down in San Diego will be consolidated at Cipher Data’s plant in Singapore, part of a long-term shift of Cipher Data production overseas. In early 1987, Cipher Data closed its Garden Grove plant, laid off 250 workers and moved most of the plant’s manufacturing to Singapore.

Word of the job cuts came after a 12-month period during which Cipher’s revenues generally trended upward. Cipher Data’s first-quarter 1989 revenue of $52 million was up 32% from the same quarter a year ago, although off from the $55.9 million in sales for fourth quarter 1988.

Analysts expect Cipher Data’s revenues to remain flat over the next two quarters or so, Anderson said. “If we were in a 15% growth mode, quarter to quarter,” Cipher Data might not be making the job cuts, he said. As of Sept. 30, Cipher Data’s payroll totaled 2,066.

Productivity Increased

Explaining the productivity gains, Anderson said Cipher Data has benefited from improved product design of some products requiring less labor. The company said that worker productivity had increased to $100,000 in revenue per employee from $65,000 two years ago and that gross margins were up nearly 5% in fiscal 1988.

Ray Freeman, president of Freeman Associates, a Santa Barbara-based market research firm that tracks computer sales trends, said the “facts seem to substantiate the actions they are taking.”

“A reduction in work force usually signals problems in a company,” Freeman said. “In those cases, it is often focused on overhead such as administrative personnel. (Cipher Data’s) reduction, however, appears to be based on a 54% improvement in worker productivity over the past two years. That’s certainly an improvement that would permit a reduction in (payroll), even in a growing business.”

In over-the-counter trading Tuesday, Cipher Data stock closed down $.375 at $8.75 a share.