Stock of Archive Corp. Takes Off As Institutional Buyers Move In
Archive Corp., a Costa Mesa firm that makes backup storage devices for computer data, caught the eye of the investment community last week as heavy buying pushed the price of the company’s stock up to $8.125 a share on Thursday.
The $1 jump in price marked the biggest daily price increase for Archive this year.
The stock finished out the week unchanged.
Heavy institutional buying was apparently behind the price surge, which comes in the wake of a strong year-end earnings report released 2 weeks ago.
Two large brokerage houses, Shearson Lehman Hutton and Bateman Eichler, Hill Richards, purchased large blocks of Archive stock on behalf of institutional investors, according to B.J. Rone, Archive’s vice president in charge of finance and administration.
Daily volume also skyrocketed to 206,000 shares, about four times heavier than normal, Rone said.
Thursday’s sharp price increase was the second day last week that investors expressed renewed interest in Archive. On Tuesday, a Boston-based brokerage, Adams, Harkness & Hill Inc., purchased 75,000 shares of Archive for its institutional clients.
Archive makes magnetic-tape devices that back up hard disks used to store computer information on multiuser systems and personal computers. The devices store data on the magnetic tape cartridges. The data can then be reloaded into a computer’s memory in the event that a hard disk crashes. Tape drives are a slow form of data storage compared to disk storage, but are a reliable form of backup storage.
Archive is the leader in 5.25-inch storage systems, which is the most common system, and has captured about 40% of the market.
One analyst said trading was driven by rumors that Archive may become the subject of a takeover bid. Others said the stepped-up interest in Archive is not surprising and, if anything, is overdue.
Marshall J. Leisten, a securities analyst for Volpe & Covington, a San Francisco brokerage, said institutional investors are finally waking up to the fact that Archive has just finished a year in which earnings jumped a whopping 72% on a 38% increase in revenue.
Archive reported on Nov. 30 that for the fiscal year ended Sept. 30, profits rose to $10.5 million from $6 million a year ago.
Sales increased to $122.7 million, compared to $88.8 million for the previous year.
Leisten said that the financial news has been good all year but that institutional investors have until recently been leery of Archive for two reasons.
The first, he said, is the overall weakness in the disk-drive market.
“People tend to lump the tape-drive industry with disk drives. But the dynamics of the two businesses are very different. Tape drives are an insurance sale,” Leisten said.
In fact, while the disk-drive business is in a slump, tape-drive orders are up.
Another factor that has been depressing the stock, at least until recently, is a patent dispute with competitor Cipher Data Products Inc.
A favorable federal court ruling last month, however, permitted Archive to continue selling its most popular tape drive until the suit goes to trial in March.
Cipher Data of San Diego had asked for a preliminary injunction barring sales of Archive tape drives, claiming that it holds a 1986 patent for the technology. Archive, in turn, contends that it developed the product first and licensed it to Cipher Data in 1981 and 1983.
“There is some discussion going on among institutional clients about the case. Archive is becoming a lot more confident about their ability to win the case and collect damages from Cipher,” Leisten said.
Archive went public in August, 1987, at $12 a share. The stock never got above that level and plummeted to about $5 a share after the October, 1987, crash. Since then, it had gradually climbed to $7.25 before last week’s price action.
In November, 1987, the company announced that its board had authorized a stock buyback program for up to 1 million shares. To date, the company has hauled in 490,000 shares.