Pinnacle Micro Chairman Resigns
The chairman and founder of computer data storage maker Pinnacle Micro Inc. resigned Friday after announcing a first-quarter loss and a layoff of 15% of the company’s 190 workers.
William F. Blum, who still controls a 56% stake in the ailing company through a family trust, said he is retiring to make room for new management, which will have to cope with at least one more quarter of substantial losses, according to company officials.
The company said Friday that it lost $3.9 million in the first quarter, compared with earnings of $12,000 a year ago, and disclosed that significant market and internal development problems are keeping it from delivering its products on time. Sales for the first three months dropped 13.6% to $17.4 million.
Pinnacle’s stock lost 25% of its value Friday, dropping $2.50 a share in heavy Nasdaq trading to close at $7.50.
Pinnacle’s management dilemma is typical at companies whose entrepreneurial founders tend to emphasize product development and marketing at the expense of operating and financial controls, industry observers say.
Blum started Pinnacle with his wife and son using $83,000 from a lump-sum retirement payment from Hewlett-Packard Co., where he had spent 21 years as an engineer and sales and marketing manager.
Now the company, which makes optical data storage devices that use laser beams to record and retrieve information, is being pressured by competition from larger optical and magnetic storage device makers, including Fujitsu, Sony, Phillips and even neighboring hard drive maker Western Digital Corp.
Analysts say the optical storage business has not been a strong one overall because its products are still much pricier than those of magnetic storage devices.
But on top of its industry-related problems, Pinnacle has encountered engineering problems that have kept it from producing two key recordable and erasable CD drive systems in sufficient volume to generate much-needed revenue, the company said.
Pinnacle also has had internal financial problems. Earlier this year, it reported to regulators that it is in default on its $5-million credit line from Bank of America and must find a new lender to keep it going.
As part of the corporate restructuring aimed at rescuing Pinnacle, Daryl J. White, chief financial officer of Texas-based Compaq Computer Corp. and a Pinnacle board member since September, will take over as chairman on Monday--Pinnacle’s ninth anniversary. White will retire from Compaq.
Laurence Goelman, managing partner of venture capital investment firm Tremont Partners Inc., a Pinnacle board member for just one month, will serve as interim president and chief executive until a permanent replacement is hired.
Blum’s son, Scott Blum, will remain as executive vice president for marketing.
Pinnacle in recent weeks also has hired three new senior executives. They include a general manager and an operations chief whose posts are new in the corporate hierarchy and a chief financial officer who reports on May 20 to take over a post that has been vacant more than a year. The position has been filled since then by an interim financial officer.
Neither Blum nor anyone on the new management team would comment Friday. Blum, in a brief prepared statement, said he is stepping down because Pinnacle “needs an experienced [management] team.” Pinnacle lost $2.5 million last year and was forced to hire new accountants earlier this year when its outside auditors quit, citing differences over Pinnacle’s decision in prior quarters to delay reporting certain engineering costs as expenses. The company since has reported the costs as expenses, which added to its 1995 loss.
In its statement Friday, Pinnacle said that it does not expect its problems to be resolved until the last half of the year and thus expects further losses “at approximately the current rate” in the second quarter.
