Cipher Data to Lay Off 525 Workers

Battered by a dramatic drop-off in demand for its computer data storage devices, Cipher Data Products on Thursday announced plans to lay off 525 workers--24% of its work force.

The company also reported a $14.2-million loss for its first quarter, which ended Sept. 30.

Among the jobs eliminated was that of Cipher Data’s president, Edward L. Marinaro, who resigned effective Thursday. Marinaro’s duties will be assumed by Cipher Data Chairman and Chief Executive Gary Liebl, who declined to discuss financial aspects of Marinaro’s severance agreement.

Cipher Data is a leading manufacturer of computer tape drives used as data storage devices in high-powered computer systems, such as minicomputers and small mainframes. As more businesses turn to desktop computers and workstations, demand for Cipher Data’s devices has dropped sharply.

“We have seen this coming for the last year or so, but we didn’t expect it to manifest itself so quickly,” Liebl said.

Total sales of half-inch, reel-to-reel tape drives--Cipher Data’s bread-and-butter product--will shrink to 128,000 units this year from 144,000 units sold in 1988, according to Freeman Associates of Santa Barbara. By 1993, unit sales will fall to 57,000, Freeman Vice President Bob Abraham said.

In 1987, the most recent year for which figures are available, Cipher’s share of the half-inch, reel-to-reel tape drive market was 32%, Abraham said.

Marinaro joined Cipher Data in August, 1988, from Western Digital in Irvine, Liebl said. “Ed and I collaborated on the decision (to resign), we jointly agreed on it, and he tendered his resignation accordingly,” Liebl said.

The job cuts will include 200 at Cipher Data’s San Diego headquarters and manufacturing plant and another 180 layoffs at Cipher Data’s newly acquired subsidiary, Irwin Magnetic Systems, in Ann Arbor, Mich. Half of the 100 employees at Cipher Data’s Optimem operation in Mountain View will also be laid off.

Cipher Data acquired Irwin Magnetic in a bid to expand its product line. Irwin’s 3.5-inch cartridge tape drives hold a 50% share of the $250-million desktop computer tape drive market.

The job cuts are being felt by employees at all levels of the company, Liebl said, and will be implemented over the next week or so.

Over the past several years, Cipher Data has moved most of its manufacturing operations to Singapore, and Liebl said some of the jobs eliminated could be reinstated there when the market rebounds.

The $14.2-million first-quarter loss, which came on revenue of $41.3 million, contrasts with a $3.8-million profit on $52 million in revenue over the same quarter last year. Cipher’s first-quarter revenue would have been only $28 million had it not been for the sales added through the acquisition of Irwin earlier this year.

Cipher Data stock closed Thursday at $4.75, down $.625 in over-the-counter trading. For the fiscal year ended June 30, Cipher Data reported a profit of $12.2 million on revenue of $217.8 million.