Quantum Corporation Business Information, Profile, and History
San Jose, California 95110
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History of Quantum Corporation
Quantum Corporation is a leading supplier of digital linear tape (DLT) technology used to backup data. It has sold more than 100 million half-inch cartridge tapes for the two million DLT tape drives in use. Quantum was the largest hard disk drive manufacturer in the world before these operations were sold off to Maxtor. Quantum also produces disk-based data backup systems.
Quantum's first president was James L. Patterson, an experienced engineer with considerable business acumen. Making decisions based on a collegial rather than a hierarchical management model, Patterson inspired confidence and a hard work ethic. By 1984, four years after its incorporation, Quantum was leading the market in mid-capacity 5.25-inch disk drives, having jumped ahead of Priam Corporation, Micropolis Corporation, and Control Data. Nearly 20 percent of the 473,000 5.25-inch drives sold in 1985 were made by Quantum. The company's financial statement reflected its growing leadership position in the disk drive market. From 1984 to 1985, revenues increased from $106.2 million to $126.6 million, a growth of almost 20 percent, and earnings increased from $18.1 million to $21.5 million, a jump of over 18 percent. Without any long-term debt, the company was able to concentrate on developing a new line of 5.25-inch OEM (original equipment manufacturer) products.
The company's revenues remained at the same level in 1986, but production delays with its new generation of 3.5-inch disk drives led to a loss of all but two of its customers. Displeased with what they regarded as complacent management, Quantum's board of directors replaced Patterson with Stephen M. Berkeley, the head of the company's subsidiary, Plus Development Corporation. In addition to a new chief executive officer, the board also appointed David A. Brown, a former associate of Berkeley at Plus Development, as Quantum's new president.
Smaller Is Better in the Mid-1980s
Realizing that Quantum had fallen behind its competitors in the market for hard disk drives, Berkeley and Brown were determined that their company should take the lead in the industry-wide move toward smaller computers. This decision meant that Quantum would have to phase out its production of 5.25-inch disk drives in order to concentrate on the 3.5-inch disk drive market.
The two men immediately plotted a strategy that was unusual for companies within the disk drive industry. Ordinarily a firm either buys the components it uses to build disk drives or it manufactures its own. Either road has both benefits and liabilities: if a firm buys its components, it avoids high fixed costs but may run short of parts when demand increases; conversely, if a firm makes its own components, it can outfit production easily to meet an increase in demand, but if demand slows then high fixed costs take their financial toll. Having already established a working partnership with Matsushita Kotobuki Electronics Industries, Ltd., a Japanese firm that had grown into the largest manufacturer of videocassette recorders, Berkeley and Brown hired MKE to facilitate Quantum's entry into the 3.5-inch disk drive market. The two companies reached an agreement whereby Quantum took on the responsibility of designing and marketing new products while Matsushita manufactured them. Although the Japanese company had never built a disk drive before, its skills in manufacturing electromechanical equipment had already been proven.
Quantum's arrangement with Matsushita instantly led to benefits for both companies. Matsushita required Quantum to completely redesign and overhaul the manner in which it developed disk drives, which led to the implementation of design by robotic assembly. Although this redesign frustrated some of Quantum's engineers, the end result was more than the company could have hoped for. Since Matsushita spent nearly $150 million in developing automated plants, Quantum derived all the benefits of manufacturing in-house without any of the usual fixed costs. In contrast with most of Quantum's competitors, over 95 percent of all the disk drives built on Matsushita assembly lines needed no reworking. This efficiency meant that Quantum had one of the highest gross margins in the entire disk drive industry--even after what was paid to Matsushita.
Quantum's leadership was correct in anticipating a quick rather than slow transition toward more compact drives. Not surprisingly, the company's efforts to create the new generation of 3.5-inch disk drives resulted in record sales. In 1989, Quantum increased its revenues to $394.2 million and reported a net income of $41.3 million. These figures catapulted Quantum to the top of the compact drive market. The company's contract with Apple Computer Inc. significantly helped it achieve its leadership position. At the time, approximately 40 percent of company sales were going to Apple, which used Quantum's 3.5-inch ProDrive in its Macintosh SE30 and Macintosh Iicx computers. Other firms that bought Quantum disk drives included Sun Microsystems Inc., Hewlett-Packard, and Next Inc.
A $1 Billion Company in 1991
In 1991, Quantum passed one of its most important milestones--revenues of over $1 billion. Revenues increased an amazing 50 percent over the previous year, the amount totaling $1.07 billion. With its burgeoning revenues, its focus on quality control, and its efficient distribution network, Quantum was also listed in the ranks of the Fortune 500 for the first time during the same year. Quantum was Apple Computer's leading suppler of disk drives; Apple used the drives in its newly introduced Macintosh Classic and LC desktop computers. Even though the company continued to ship its disk drives to Apple at the same level through the entire year, sales to Apple actually fell as a percentage of Quantum's total sales, decreasing from 40 percent to 15 percent. Quantum's impressive revenue growth stood on a widening customer base.
Quantum's strong revenue growth was partially due to the introduction of new products and the upgrade of existing ones. The company brought out 11 new models of its 3.5-inch and 2.5-inch drives and improved its product line of Passport removable disk drives. The company also put a significant effort into reducing the amount of development time for a particular product, cutting the process from 24 months to 15. The most important element contributing to Quantum's revenue growth, however, was the company's expansion of its distribution network. Quantum signed agreements with Rein Elektronik, a leading distributor in Germany, and Inelco Peripheriques, one of the leading distributors in France. These two distributors provided Quantum with a reliable flow of cash from the European market. The company also merged its Plus Development Corporation subsidiary into its Commercial Products Division. Plus Development, a manufacturer of hard disks on adaptor cards, otherwise known as "hard cards," was reorganized to better serve the growing demands of the distribution network that included retail outlets and computer superstores.
In 1992, Quantum brought in new leadership. Berkeley and Brown, who had directed the company to unparalleled growth and record revenues, relinquished their day-to-day control of operations to the new chief executive officer William J. Miller, an 11-year management veteran from Control Data Corporation. The momentum that Berkeley and Brown had created continued under the new CEO. At the end of 1992, Quantum's revenues were reported at $1.54 billion, a whopping 43 percent increase over the previous year's figures. The company's increase in net income was even more impressive, from $49.6 million to $84.7 million--a leap of approximately 71 percent. Quantum appeared to be doing everything right.
Yet throughout 1992 and 1993, there were indications that Quantum's market share was eroding, and that companies such as Conner Peripherals Inc., Seagate Technology Inc., and even cash-strapped Maxtor Corp. were carving out a larger piece for themselves. In late 1992, Quantum sales nearly came to an abrupt halt, as the company found itself unprepared to meet the demand for its products. Matsushita, with whom Quantum had contracted to manufacture its product lines, was unable to build the required disk drives quickly enough for the company to maintain its share of the market. Thus, in spite of its increase in revenues, Quantum spent most of the latter part of 1992 and early 1993 expanding its production base in order to meet demand. The new management quickly entered into a long-term agreement with Matsushita that gave Quantum the right to design and market its product line worldwide and gave the Japanese company the right to worldwide manufacturing. The two companies also arranged for Matsushita to build a state-of-the-art plant in Ireland at a cost of $40 million to help Quantum quicken the pace of distributing products throughout its European network.
Quantum's management had corrected the incipient problems, and the company once again achieved record revenues--$1.7 billion by the end of fiscal 1993. Net income for the first nine months of the fiscal year rose an astonishing 128 percent. Sales to original equipment manufacturers, such as Apple, accounted for more than 33 percent of Quantum's total figures. Although Quantum was still heavily dependent on its business with Apple, the company had increased sales to other OEM customers, including AST Research, Dell Computers, Compaq, and Hewlett-Packard.
The company's strategy to increase its worldwide distribution network had also paid off handsomely. Sales from the international sector accounted for over 45 percent of the company's total annual sales, and accounts with such well-known foreign firms as Fujitsu, ICL, Lucky Goldstar, NEC, Olivetti, Peacock, Philips, Sharp, and Siemens assured long-term financial stability. Quantum also decided to improve upon its burgeoning international operations by relocating its European headquarters to Neuchatel, Switzerland. With a new factory in Ireland and an expanding distribution network, Quantum had developed its operations to provide the best possible service and support to its multinational customers.
As of 1994, Quantum's continuing success depended on the development of its product line and its ability to bring these items to market in a timely manner. The company's ProDrive ELS, a low-priced disk drive targeted at entry-level systems, was doing very well, and the 240 ProDrive LPS 1-inch high-capacity disk drive was one of the best-selling products Quantum had ever introduced. Along with its Maverick 270 and 540 AT/S, a high-capacity disk drive for larger systems, and its Daytona and Go-Drive GLS drives for portable systems, primarily notebooks, Quantum was not only keeping abreast of the market in 1994 but continuing to position itself as one of the top companies in the industry.
Digital Businesses Bought in 1994
Quantum had sales of $2.1 billion in fiscal 1994, making it the third largest hard disk supplier behind Seagate and Conner Peripherals, two firms that later merged. Quantum acquired Digital Equipment Corp.'s disk drive business in July 1994 for $348 million, improving its position in the market for large capacity drives. An 81 percent stake in two-year-old recording head manufacturer Rocky Mountain Magnetics Inc. was included in the sale, as were production facilities in Massachusetts and Malaysia. The buy gave Quantum ownership of Digital's proprietary DLT tape drive.
Quantum posted a loss of $90 million in fiscal 1996. The company closed plants and cut more than 2,200 jobs as it farmed out production of its most advanced disk drives to a joint venture with Matsushita-Kotobuki Electronics Industries called MKE-Quantum (MKQC). This partnership was ended in November 1998 due to losses.
Tape drive sales, oriented towards large companies with huge data storage needs, were growing ever more important. Focusing on this segment, rather than the low-margin hard drive business, in 1998 the company paid $300 million to buy Irvine, California-based ATL Products, which produced tape-automation and library storage equipment. Network-attached storage (NAS) supplier Meridian Data was acquired in 1999.
Quantum also licensed a Norwegian company to produce and sell tape drives for the European market. DLT drives accounted for a little over one-fifth of 1998's revenues of $6 billion.
Quantum's disk drives and storage systems units attracted different types of investors. Quantum inaugurated a unique scheme that allowed investors to buy shares in the two lines of business separately via "tracking stocks," which were issued on the New York Stock Exchange in July 1999. Quantum's original listing on the NASDAQ was phased out.
The company lost $30 million in fiscal 1999. Later that year, it laid off 800 employees as it reoriented its hard drive business towards low-cost PCs and consumer electronics such as digital TV recorders.
HDD Group Sold in 2001
Quantum's Hard Disk Drive Group lost $104.8 million on revenues of $3.31 billion in the fiscal year ended March 31, 2000. Quantum sold the unit to Maxtor in 2001 for about $1.3 billion worth of stock. The deal made Maxtor the largest producer of hard disk drives by volume and second only to Seagate in sales.
The sell-off of the hard disk drives division left Quantum with only the DLT & Storage Systems Group. This unit changed its name to Quantum Corporation while retaining its tracking stock symbol, DSS.
Since acquiring the tape drive business of Digital Equipment, Quantum's Colorado Springs operation had grown to occupy two buildings totaling almost 280,000 square feet and employing 1,700 people in mid-2001. While high-volume manufacturing had been shipped off to Malaysia, Colorado Springs remained an important strategic center for developing and producing new products, such as the Super DLT tape drive, which was twice as fast as the original. Quantum also had a 100-employee design center in Boulder.
Rick Belluzzo, formerly chief operating officer of Microsoft, became CEO in August 2002. He replaced Michael Brown, who had joined Quantum in 1984 and had become CEO in 1995 following the resignation of William Miller.
In September 2002, Jabil Circuit acquired Quantum's Malaysian facilities and was signed on as the company's new production partner. Quantum then laid off 1,100 workers, most of them at the factory in Malaysia, although it expected the majority of them to be rehired by Jabil Circuit.
The Storage Solutions and DLT Tape divisions were merged in 2003; at the same time, three business units--Storage Devices, Media, and Storage Systems--were created. With the amount of data used by business increasing and regulation and financial necessity compelling enterprises to back up their data, Quantum appeared to have ample opportunities ahead.
Principal Subsidiaries: ATL Products Vertriebs GmbH. (Germany); ATL Products UK Ltd.; ATL Products International Inc.; Benchmark Tape Systems Ltd (UK); Quantum Data Storage B.V. (Netherlands); Quantum Peripheral Products (Ireland) Ltd.; Quantum Peripherals (Europe) S.A. (Switzerland); Quantum Peripherals (Malaysia) Sdn. Bhd.; Quantum Storage GmbH (Germany); Quantum Storage Australia PTY, Ltd.; Quantum Storage Japan Corporation; Quantum Storage Singapore Pte. Ltd.; Quantum Storage UK Ltd.; Quantum Storage France; M4 Data (Holdings) Ltd. (UK); SANlight Inc.
Principal Divisions: Storage Devices; Media; Storage Systems.
Principal Competitors: Exabyte Corporation; Hewlett-Packard Company; International Business Machines Corporation; Seagate Technology; Sony Corporation; Storage Technology Corporation.
- Key Dates:
- 1980: Quantum Corporation, headed by James Patterson, is incorporated.
- 1984: Quantum leads the market in mid-capacity 5.25-inch drives.
- 1986: Matsushita is contracted to produce 3.5-inch drives.
- 1989: Quantum leads the compact drive market.
- 1991: Revenues climb 50 percent in one year to exceed $1 billion.
- 1993: Matsushita opens a plant in Ireland to supply Quantum in Europe.
- 1994: Quantum buys hard disk, tape drive businesses from Digital.
- 1998: ATL, a tape-automation and library storage business, is acquired.
- 1999: Network-attached storage supplier Meridian Data is acquired.
- 2001: Quantum sells its hard drive business to Maxtor.
- 2002: Jabil Circuit buys Malaysian production facilities.
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