Disk-Drive Maker’s Stock Plunges : Technology: Weak earnings projections cause Micropolis investors to dump shares. The recession is blamed.
Six weeks ago, Micropolis Corp. in Chatsworth was doing so well that it successfully sold an additional 2 million shares of stock to the public for $13.50 apiece.
How quickly things can change.
Micropolis’ stock now sells for about half that price after the disk-drive maker’s announcement last week that its second-quarter orders and profit would trail year-earlier levels. That prompted investors to dump the stock, which closed Monday at $7.25 a share in national over-the-counter trading.
Disk drives are the components that store and retrieve data inside computers. Micropolis blamed its second-quarter slowdown on slumping orders “within the past two weeks” from computer customers that incorporate Micropolis’ drives into their systems.
In addition, price-cutting by competing distributors of disk drives also is going to “adversely impact” Micropolis’ profit margins in the quarter, the company said.
The result: Micropolis said its second-quarter earnings will be below the 20 cents a share the company earned in the second quarter of 1990.
The latest projections deal at least a temporary setback to the firm’s effort to maintain its recovery after major losses in the late 1980s. After losing a combined $69.2 million in 1988-89, Micropolis cut staff, introduced new products and boosted its marketing efforts, rebounding last year with a profit of $7.9 million on sales of $380.6 million. Because of that recovery, the company’s stock climbed from $3.50 a share at the end of 1989.
In this year’s first quarter alone, the company earned $6.1 million, which helped lift investor interest in Micropolis’ secondary stock offering in early May.
But even before that, Micropolis was warning that its business might weaken. In April, it noted that “a continuing cautious outlook by our customers” had cut its order backlog.
And two weeks ago, Paul Weinstein, who follows the company for the investment firm Kidder, Peabody & Co., cut his estimate of Micropolis’ 1991 profit to $1.75 a share from $2.15, which triggered a sharp drop in Micropolis’ stock price. (Kidder, Peabody also managed Micropolis’ secondary stock offering in May.)
James N. Porter, publisher of the Disk/Trend Report, a trade publication in Mountain View, blamed Micropolis’ problems on the economy. Because of the recession, one or more of Micropolis’ customers “are having problems themselves or they’re just being very cautious to hold down orders.”
Micropolis “is very well managed, and the improvements they’ve made in their product line are significant for future growth,” Porter said. “They’ve rebuilt their engineering staff and improved their research-and-development capability.”
