After Nearly 8 Years of Struggle, Ibis Systems Begins to Take Off
Ibis Systems’ name stems from a funny-looking bird with a hose-like neck, long legs that resemble sticks and a thin, curved bill.
Naming Ibis the company after Ibis the bird is a bit ironic. For most of its 8-year history, the privately owned Westlake Village company, which makes disk drives used to store and retrieve data in some of the most powerful computers ever made, has stumbled when it tried to take off. This happened even though venture capital firms have pumped $100 million into Ibis since it was founded in late 1980.
Change for the Better
Things finally changed for the better this year. Plagued in the past by quality problems in its manufacturing and strained customer relations, Ibis was whipped into shape by Donald E. Sturtz, 45, a one-time IBM engineer hired as president and chief executive in July, 1987. Sturtz is the latest of four full-time executives who have led the company since it was founded.
Now Sturtz’s efforts seem to have paid off. In previous years, Ibis showed losses or, at best, thin profits. But Sturtz expects 1988 to be solidly profitable, although he won’t release specific numbers.
It helps that Ibis has a big customer. Ibis has benefited from a steady demand for its products from supercomputer-maker Cray Research in Minneapolis, which accounts for more than half of Ibis’ $50 million-plus in annual sales.
The improved results have Ibis’ private investors and board of directors breathing easier. “The board is happier. I know because the time is longer between our meetings, and we have shorter meetings,” Sturtz said.
‘Happy With Status’
David C. Fries, partner with Canaan Venture Partners in Connecticut, who serves as Ibis’ chairman, confirms Sturtz’s view. “I’d say we are quite happy with the status of the company just now,” he said.
Not that Ibis lacks challenges. Ibis faces growing competition in the disk-drive arena from Minneapolis-based Control Data and Japan’s Fujitsu. What’s more, for all the growth in the supercomputer business, making disk drives for the machines remains a highly specialized field. Ibis estimates the total worldwide market for supercomputer disk drives at $240 million, which is less than the annual sales of a moderate-sized high-tech company. Some question whether there is room for growth for a company like Ibis.
“It’s like supplying pilot seats for the space shuttle. How many are you going to build?” asked James Porter, president of Disk/Trend, a Mountain View market research firm.
But Sturtz isn’t worried about a lack of huge growth spurts. He likes the go-steady approach. He acknowledges that the company bears little resemblance to the kind of turbulent, hyper-growth (and sometimes hyper-flop) companies found in such areas as Silicon Valley.
“You won’t see 200% to 300% growth, but I am looking at a steady pattern of growth,” Sturtz said.
Close Ties to Cray
One thing to worry about, though, is that Ibis’ fortunes are closely tied to those of Cray, the premier American supercomputer company, which controls more than half of the world market on annual sales of about $750 million.
Cray stumbled in 1988 with the resignation of its brilliant designer, Steve S. Chen, who formed an alliance with IBM, the company that most likely poses the biggest long-term threat to Cray. In addition, Cray surprised investors and analysts with a drop in its third-quarter profit, which came amid reports that the company was having problems with new gallium arsenide computer chips that are used in its newest supercomputers.
Supercomputers such as the ones Cray makes are powerful, smart machines favored by engineers and scientists because they are capable of gulping and digesting millions of characters of information each second. Some newer supercomputers are capable of performing 4 billion calculations a second.
Priceless Tools
Despite prices that range from $5 million to $25 million each, supercomputers are priceless tools for automotive designers who can test the crashworthiness of a car on a computer, engineers who use the machines to build rockets, animators who design complex graphics for movies, and even scientists who want to simulate how the universe might have developed after the “Big Bang.”
Such computers demand disk drives that can store huge amounts of data and can retrieve it in microseconds. Much like a powerful engine that runs faster when more fuel is injected, a supercomputer runs faster when it is fed large amounts of data quickly. Otherwise, a bottleneck of data would form, and the machine would run slower than it is capable of operating.
The Ibis drives cost about $70,000 and are housed in large metal boxes somewhat larger than a kitchen dishwasher. By contrast, hard-disk drives used in personal computers are about the size of a small shoe box and can sell for less than $300.
Inside the Ibis drive are nine rigid aluminum platters that are 14 inches in diameter and treated with special coatings. Data is written on and read from the platters using magnetic heads.
High ‘Transfer Rate’
The Ibis product’s appeal is its “transfer rate,” which is the amount of data it can swap back and forth with the computer in 1 second. Ibis’ main product has been capable of shuffling 12 megabytes--or 12 million characters of information--back and forth between the disk drive and the computer in 1 second. The newest version can transfer 24 megabytes, or 24 million characters.
Such rates are achieved using a technology called “parallel transfer.” Information is transferred to and from the computer through four channels rather than one. The process is analogous to using four fuel lines to feed gasoline to an engine rather than one.
Ibis was founded in Duarte in the San Gabriel Valley by a group of former executives with IBM, Memorex, Xerox and Burroughs. About 70% of Ibis is controlled by a venture capital arm of General Electric, whose investment is managed by Canaan Venture Partners; a firm led by wealthy Pittsburgh industrialist Henry L. Hillman, and Rothschild Inc., an investment arm of Europe’s Rothschild family. Employees hold most of the rest.
Originally, the company planned to make disk-storage devices similar to ones that IBM made for its large, mainframe systems. But the market was too crowded. Ibis’ efforts failed, and all of its founders have left. In 1983, the company shifted to building drives for supercomputers.
Ibis has grown largely by riding Cray’s coattails. Despite its problems this year, Cray is the world leader in the business along with Japan’s Fujitsu.
Strained Relations
Relations between Cray and Ibis became strained early last year when Ibis’ quality in manufacturing was suffering, which slowed overall production as the problems were worked out. Ibis executives admit now that the company wasn’t listening closely to customers, such as Cray, who complained about the quality of the product they received.
“What our customers were saying is that we shouldn’t think that Ibis was their only alternative,” Fries said.
The problems led to a search for a new top executive. Sturtz was running a start-up company in San Jose called Kaitek when he was recruited by an executive search firm to apply for the Ibis job. He and several other candidates were given several days each to figure out Ibis’ problems and to come up with recommendations.
“I titled my presentation, ‘Tips of Icebergs,’ ” Sturtz said.
Ibis’ executives seem unconcerned about recent bad news for Cray, which the company has characterized as exaggerated. Indeed, Cray’s reclusive founder, Seymour Cray, emerged last month to make a rare public comment, calling reports that Cray was experiencing major cooling problems with gallium arsenide chips “off the wall.” In addition, the company disclosed earlier this month that it will meet or exceed its target of 55 supercomputer orders for the year.
Plans to Diversify
Fries said Ibis is trying “to be the disk drive of choice for the domestic supercomputer industry.” At the same time, company executives are working on plans to diversify its products.
The company already supplies Cray rivals, including ETA Systems, which, ironically, was created by Control Data 5 years ago. Potential new business for Ibis may come from making drives that can be used in high-end workstations similar to what such companies as Sun Microsystems make and from making computer systems used in such areas as medical imaging.
That, however, will bring it even greater competition from such companies as Fujitsu. Another potential threat is from companies that may package small disk drives, such as those that use platters 8 inches or 5.25 inches in diameter, for use in supercomputers.
So far, that hasn’t happened. And the company is working hard to make sure that Ibis the company doesn’t show up on any endangered species lists.
