Exabyte Corporation Business Information, Profile, and History

Company Perspectives:

Founded in 1985, Exabyte Corporation is known around the world for innovative tape storage solutions and premium quality media. Exabyte designs, manufactures and markets data storage products for midrange, high availability networks. Available through OEMs, distributors and resellers around the world, Exabyte tape products include the award-winning M2 drive: fast, high capacity and self-cleaning.

History of Exabyte Corporation

Exabyte Corporation designs, develops, produces, and sells tape subsystems for data storage applications. The company primarily makes a full range of eight-millimeter, four-millimeter, and quarter-inch minicartridge tape drives and tape libraries, as well as data cartridges and media supplies. Exabyte also provides worldwide service and support for its full line of products. These products provide reliable compact data storage for discrete but fast growing segments of the computer industry, including mid-range systems, networks, workstations, and personal computers. Exabyte's products offer a range of storage applications for data acquisition and interchange, data and software distribution, automated storage management, and archiving.

The Drive for Faster Storage Systems in the 1980s

Exabyte was founded in 1985 by Kelly Beavers, Juan Rodriguez, and camera buff Harry Hinz, who saw the possibilities of turning camcorder technology into an ultrafast, high-capacity data storage medium. Rodriguez had 20 years of computer experience at IBM and then as cofounder of Storage Technology, a producer of disk drives. Hinz and Beavers were fellow Storage Technology employees. The founders initially sought to produce and sell high-capacity, self-operating, eight-millimeter tape drives for use as data backups for mid-range computers. Before the creation of Exabyte, producing backup data was a laborious process, requiring the use of conventional tape technology and the presence of operators tediously changing reels or cartridges as they slowly filled with data. This process could take hours, sometimes days. With Exabyte's innovation, backup operations could be performed quickly and without the presence of manual operators. The company's success relied primarily on the quickly changing computer industry and the increasing need to manage, store, and retrieve vast amounts of essential data.

The innovation of high speed backup systems was a relatively recent phenomenon. Early computers were designed for calculating rather than for storing and managing data, which was largely done on punch cards. Rapid advancements in computers rendered these machines obsolete, giving way to workstations, minicomputers, networks of personal computers, and supercomputers used for a host of academic, commercial, and scientific purposes. Central to these advancements were rapid innovations in the microprocessor, governing the speed and power of computer systems. Equally important were advancements in the ability of computers to collect, store, and retrieve huge quantities of data. The phenomenal growth in storage capacity, usually in the form of nonremovable disks, created a parallel need for efficient backup systems in case of data loss. While computer manufacturers had considerably increased disk drive capacities, innovations in tape backup systems lagged far behind. Exabyte was originally conceived for this purpose.

Exabyte's beginnings were not without difficulty. Rodriguez's reported run-ins with venture capitalists over product marketing, after only six months of testing the technology, almost torpedoed the company's chances. When the venture capitalists withdrew their backing, Exabyte had to fire all 11 of its employees. Enough local investors came forward, however, for the company to rehire them. After overcoming these obstacles, Exabyte's early success relied mostly on forging strategic partnerships to gain additional capital and manufacturing expertise. In 1986, the Japanese giant Sony Corporation agreed to produce mechanisms for the tape drives. Other agreements with Japan's Kubota to make tape drives and Solectron of Silicon Valley to produce circuit boards permitted Exabyte to limit its manufacturing role to final assembly, testing, and customization. The 1987 partnership with Kubota also brought in a large cash infusion, which considerably boosted Exabyte's cash flow.

With the backing of these partnerships, Exabyte introduced in 1987 the EXB-8200 eight-millimeter tape drive to support minicomputers and networks of personal computers. The tape backup system packed 2.3 gigabytes of data onto a videocassette and sold for $2,055. As anticipated, the tape drive was self-operating and represented a breakthrough in adapting consumer video recording technology to the storage of computer data. Applying helical scan recording technology, which had been used in video products for 30 years, Exabyte produced a compact, relatively inexpensive eight-millimeter tape cartridge drive which could hold unprecedented amounts of data. Unlike other backup systems at the time, the tapes could also be conveniently removed and stored in a vault. The EXB-8200 was the world's first 'eight-millimeter helical scan computer storage subsystem,' reducing considerably both the labor and media cost for saving backup data. The product was also designed for other conventional data processing uses, including data acquisition, software distribution, archiving, and data interchange. In the realm of data acquisition, the EXB-8200 could record and archive seismic, satellite, telemetry, and other scientific information. It also proved useful for medical and other imaging systems. In contrast to conventional tape drive technology, Exabyte's helical scan device employed relatively slow-moving tape using heads mounted on a rapidly rotating drum. This method offered several advantages contributing to high recording density. The need for 'tight tolerance' was considerably reduced as the tape drive used only one or two short tracks at a time, rather than multiple, lengthier tracks found in conventional parallel track recording. This method meant that recording tracks could be run closer together. In addition, the helical scan technology permitted the tape to run at a slower rate producing far less stress on the tape. In turn, less stress meant that thinner metal particle tape could be used to record at high densities.

Rapid Growth in the Early 1990s

In 1987, Peter Behrendt joined Exabyte as president, after more than 26 years at IBM, where, along with other positions, he directed its worldwide electric typewriter business and international marketing strategy for storage products. When Behrendt arrived at Exabyte, the company employed just 50 people and had sold only 69 tape drives worth $170,000. With Behrendt, sales tripled to $89 million in 1989 and then increased to $287 million in 1992, making Exabyte one of Fortune magazine's 100 fastest growing companies in the United States. In 1991, Behrendt became CEO. He then succeeded cofounder Juan Rodriguez as chairman, after Rodriguez left in January 1992.

Several months later, in September 1992, eight complaints were filed against Exabyte in the U.S. District Court for Colorado, alleging that top officials hyped Exabyte's earnings potential in order to sell off large blocks of personal stockholdings before having to release bad news. The complaints came immediately after a 38 percent one-day drop in Exabyte's stock price following news that its 1992 third-quarter earnings would fall far below analysts' predictions. On January 21, 1993, the plaintiffs filed a consolidated amended complaint alleging primarily the same action. The District Court dismissed the consolidated complaint, however, after the plaintiffs failed to establish an actionable claim.

In 1990, Exabyte introduced the EXB-8500, the first in a series of second generation eight-millimeter tape subsystems, which included improved data recording capabilities, storage capacity, and retrieval and transfer speed. Exabyte produced its family of eight-millimeter drive subsystems with capacities ranging from 2.5 to ten gigabytes largely for the high end of the market. The products accounted for approximately 80 percent of total revenue from 1991 through 1993. In 1994, the company also introduced the Mammoth eight-millimeter cartridge tape subsystem, the industry's fastest, highest capacity tape drive. When shipped, the product would offer a major technological leap forward with a storage capacity of 20 gigabytes.

In addition, starting in 1992, Exabyte began a series of strategic acquisitions to move from focusing exclusively on eight-millimeter data storage products to providing a full range of eight-millimeter, four-millimeter, and quarter-inch tape solutions. In 1992, it entered the low- to mid-range tape system market with the acquisition of R-Byte, a producer of four-millimeter cartridge subsystem tape products. In 1993, Exabyte purchased the Mass Storage Division of Everex Systems, Inc., which designed and produced quarter-inch minicartridge subsystems for the low-end and mid-range network and high-end personal computer market. The company then bolstered its position in the eight-millimeter market through the 1994 acquisition of German-based Grundig Data Scanner GmbH, adding helical-scan tape component research and manufacturing capabilities. The production and distribution of automated tape libraries made Exabyte the leading supplier of this product in the world.

These strategic acquisitions considerably enhanced Exabyte's share of the tape drive market. In 1993 alone, the company announced nine new products spanning three tape drive technologies, as well as automated tape libraries. Between 1987 and 1993, the company's workforce went from just 50 to more than 1,000. Moreover, Exabyte had also installed approximately 650,000 eight-millimeter tape drives throughout the world worth more than $1 billion. From a product line of one eight-millimeter tape drive subsystem with 2.5 gigabytes, Exabyte by 1994 was producing more than 30 distinct products in the eight- and four-millimeter, and quarter-inch formats, as well as library products that automatically stored between 50 gigabytes and 3.2 terabytes of data, a huge jump in storage capacity.

Exabyte's full range of products proved remarkably efficient and gained wide use among operators of personal computer networks, workstations, and mini- and personal computers. Even before the advent of its second generation of products, Exabyte counted among its customers IBM, Sun Microsystems, Motorola, NCR, Nixdorf, and Northern Telecom, to name a few. Since then, Exabyte added other customers including AT & T, Data General, Hewlett-Packard, Unisys, and many others. By 1990, the company had installed more than 100,000 tape subsystems to backup computers.

Exabyte produced its eight-millimeter and quarter-inch tape drives at its facility in Boulder, Colorado. The California firm, Solectron, manufactured Exabyte's four-millimeter products at its plant in Penang, Malaysia. The company's production strategy relied on 'just-in-time' manufacturing techniques, which emphasized flexibility and continuous flow. Exabyte also customized its subsystems for selected customers. In 1993, the company acquired Tallgrass, a marketer of storage products, to sell and support Exabyte's full range of subsystems and tape libraries to distributors in North and South America. Exabyte also established a wholly owned subsidiary in the Netherlands and sales and technical support offices in Amsterdam, Frankfurt, Manchester, Paris, Singapore, and Tokyo to sell its products throughout Europe and Asia. In 1990, Exabyte established another subsidiary in Cumbernauld, Scotland, to provide repair services to European customers. The company later relocated these services in 1994 to a large facility in nearby Falkirk. In 1995, the company announced the opening of its Shanghai, China, office to meet the needs of the burgeoning Chinese market.

Since Exabyte went public in 1989, the storage market became highly competitive and subject to rapid technological innovation. A number of manufacturers with alternative technologies entered the market and competed for a limited number of customers. Many companies, some considerably larger than Exabyte, were also engaged in producing and commercializing data storage systems, including IBM, DEC, and Hewlett-Packard, which sought to incorporate their own storage systems in their computer products. The industry had also undergone consolidation. In 1992 and 1993, the industry experienced ten mergers and acquisitions, resulting in fewer but much larger multibillion-dollar competitors. This trend was attributed to the move toward single suppliers providing multiple products. In addition, these companies moved to restructure themselves and to form strategic alliances to adapt to changing market conditions and growing competition. While Exabyte appeared to have a lock on the market for eight-millimeter tape subsystems for data storage in the mid-1990s, some speculated that other companies would soon enter the lucrative market. At that time, Exabyte's competition came primarily from companies manufacturing and distributing four-millimeter products, which because of their lower cost and smaller size rivaled the eight-millimeter products at the low-end computer workstation market. Exabyte's four-millimeter products also competed directly with these offerings. In 1994, the company stated that 'more than ever before, Exabyte is running a tough race for market leadership. While the company's expansion into new technology areas is designed to enhance its future growth prospects, it also means there are more fronts on which to fight the competition.'

Heading into the 21st Century: New Competitors, New Challenges

A number of setbacks in the mid-1990s served to cloud Exabyte's future. Many of the difficulties were beyond the company's control. One major challenge facing the company was the continually evolving nature of technology, coupled with the constant demand for new products. While its talent for innovation was what originally enabled Exabyte to rise above the competition, by 1995 the company found itself selling off large portions of its inventory at cost, or sometimes even at a loss, as demand for faster, more efficient tape drives rendered a number of its products obsolete. Sales actually rose 7.6 percent in the first six months of 1995, compared to the same period in 1994, but earnings dropped 36.6 percent, from $14.5 million to $9.2 million. The dramatic increase in value of the yen, and subsequent rise in the price of parts manufactured in Japan, also took a bite out of Exabyte's earnings, since the company depended on Sony for a third of its components.

These difficulties, part of the nature of the business, were largely unavoidable. However, the delayed release of Exabyte's long-awaited Mammoth eight-millimeter tape drive proved to be near fatal to the company. Mammoth was launched in March 1996, to great fanfare; unfortunately, it also arrived two years behind schedule. The quality of the product, like Exabyte's other offerings, was never in question: Mammoth was capable of storing 40 gigabytes of data at a rate of 21 gigabytes per hour, a substantial improvement upon Exabyte's previous storage technology. It was, in many respects, worth the wait. However, the company's failure to provide a mid-range product during the interim allowed the competition--most notably Quantum, maker of the Digital Linear Tape (DLT 7000) tape drive&mdashø make inroads into the market. Exabyte executives insisted on the superiority of their technology to Quantum's, claiming that the 'helical scan' method resulted in less wear and tear than the linear method; however, in terms of sales they had already missed the boat. While Mammoth did enable Exabyte to strike important deals with Apple and Siemens, these contracts could not make up for the lost customer base.

During this period, Exabyte attempted a number of new sales and product development initiatives in an effort to resuscitate its sagging profits. In August 1996 the company's Eagle retail division--formed in 1995 with the aim of developing storage products for PC users and small businesses--released the Eagle TR-3 minicartridge tape drive. Hoping to make an immediate impact on the $750 million--and growing--desktop tape storage business, the company offered the new product for half of what rivals were asking for similar devices. In an effort to create a faster, more efficient means of meeting demand for its products, the company launched its Strategex Partner Program in early 1997, giving computer resellers more direct access to its marketing, inventory, and technical support systems.

Unfortunately, these efforts did little to reverse the company's losses, and in late 1997 Exabyte was forced to restructure. The company reduced its job force by 15 percent, cut funding for research and development, and discontinued a number of its less profitable products. CEO William Marriner pledged to renew the company's focus on the high-capacity storage devices that formed its core business, placing great hopes in the release of the Mammoth-2 (M2) eight-millimeter tape drive, slated for late 1999. The company also entered the expanding storage area networking market in May 1999 with the launch of NetStorM ('Networking, Storage, Management'), an integrated storage solution for a range of businesses.

In spite of a tremendous sales push and rave reviews, the M2 did not restore Exabyte to profitability. The company suffered another loss of $14 million in the first quarter of 2000, and was forced to lay off another 250 employees in March 2001. However, there were still a few bright spots on the horizon. By August 2000 demand for Exabyte's products was still exceeding capacity, and the company was on schedule to release its latest eight-millimeter tape drive, the Mammoth-3 (M3), in mid-2001. The company also had high hopes for both NetStorM--with the network storage product market expected to reach $15 billion by 2002--and CreekPath Systems, a former subsidiary specializing in data storage for Internet firms, which was spun off in July 2000, with Exabyte retaining a minority interest. Still, at the dawn of the new century it remained to be seen whether these new developments would help lift the company to the level of profitability it enjoyed in the early 1990s.

Principal Divisions: Drives & Storage Media Division; Storage Automation & Solutions Division.

Principal Competitors: Quantum Corporation; Seagate Technology, Inc.; Sony Corporation.

Chronology

• Key Dates:

• 1985: Kelly Beavers, Juan Rodriguez, and Harry Hinz found Exabyte.
• 1987: Exabyte launches EXB-8200 eight-millimeter tape drive.
• 1996: Exabyte launches Mammoth eight-millimeter tape drive.
• 1999: Exabyte releases NetStorM, an integrated storage solution for a range of businesses; Mammoth-2 (M2) eight-millimeter tape drive is released.
• 2000: Subsidiary CreekPath Systems is spun off, with Exabyte retaining a minority interest.