Still-Reeling Pinnacle Micro Fires 25% of Its Labor Force
Financially troubled Pinnacle Micro Inc. fired 25% of its work force Thursday, citing weak sales of one of its major product lines and a corporate need to cut back its operating expenses.
The company, which makes compact disk storage systems, laid off more than two dozen workers at its Irvine and Colorado Springs, Colo., offices.
The company also named its founder, William F. Blum, as chairman and chief executive, partly to replace Daryl J. White, who resigned as chairman in June. Additionally, the company said that Roger Hay will resign as chief financial officer, effective next Thursday.
“We’re in a restructuring mode, so we’re just trying to get as lean as possible,” said Megan Morrow, a company spokeswoman.
The firm said last month that it was having difficulty paying trade debt. It has hired a consulting firm to help turn the business around and a bankruptcy law firm to deal with creditors. It also has hired an investment banker to raise cash or seek a buyer.
Thursday’s announcement marks Pinnacle’s second round of layoffs this year. Earlier, it fired 16 employees from its Irvine office and its European sales office in Amsterdam, according to documents filed with the Securities and Exchange Commission. It now has 85 employees, mostly at its Irvine corporate office and its Colorado Springs manufacturing plant and operations center.
Analysts said the firm’s problems began in 1995 when it changed its focus from reselling data storage devices to manufacturing the systems. But it didn’t start shipping its Apex drive, a high-capacity optical storage system, until late last year.
“They didn’t have the deep pockets to keep the technology moving forward and compete against companies like Sony or Hitachi,” said John Freeman, an optical disk drive analyst with Strategic Marketing Decisions in Los Gatos. “If it had stayed with the reseller business, it would probably be a hot, $120-million company today.”
Pinnacle, which is working on the next generation of the Apex drive, said that orders for its optical storage products have been much lower than expected.
“This company is really in trouble,” said Wolfgang Schlichting, a senior research analyst for International Data Corp. in Framingham, Mass. “They’ve been losing money for quite some time. And with the emergence of [newer] products, I think their market is going to shrink even more.”
The company has not posted a profit since the third quarter of 1995. It lost $5 million in its latest quarter, which ended June 28, compared with a $3.8-million loss in last year’s second quarter. Revenue fell 31% to $11.3 million.
Pinnacle Micro remains in default on much of its trade debt, but it has won a 60-day moratorium, which expires Sept. 14.
The company, Blum and other executives also face a $20-million securities fraud class action. The lawsuit, filed last year in federal court in Santa Ana, accuses them of improper accounting practices in handling research and development funds.
Pinnacle’s stock gained nearly 2 cents a share to close Thursday at 73 cents a share in Nasdaq trading.
