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Tandon to Sell Data-Storage Business to Western Digital

December 08, 1987|JAMES BATES and DAVID OLMOS | Times Staff Writers

Tandon announced Monday that it has agreed to sell its hard disk-drive business to Western Digital in a deal valued at nearly $80 million.

The sale effectively removes Tandon from the data-storage business, in which it had become one of the personal-computer industry's best-known suppliers in the early 1980s.

Tandon, headquartered in Chatsworth, now will rely almost exclusively on its personal-computer business.

The sale, which is expected to be final early next year, is yet another sweeping move by its chairman and chief executive, Sirjang Lal (Jugi) Tandon, to redirect the company.

In an interview, Tandon acknowledged that the sale was largely made to ease the financial strain on the company as it expands in the personal-computer business. In the quarter ended Sept. 30, the company had only $8.6 million in cash.

Western Digital, based in Irvine, agreed to pay Tandon between $40 million and $45 million in cash and equipment. It also agreed to pay off $34 million that Tandon owes to its suppliers. Assets involved in the sale are valued at $51 million.

Tandon reported that $12 million will be used to repay loans from Western Digital.

For Western Digital, the deal represents a further broadening of its personal-computer equipment line, which primarily has been electronic boards that control storage and flow of data.

Western Digital was one of the first companies to announce products for IBM's new personal-computer line, the Personal System / 2. In October, Western Digital introduced a line of semiconductor products that duplicate the operations of IBM's so-called Micro Channel, a communications pathway inside some of IBM's new models. Duplicating the functions of the Micro Channel could be the key to the "cloning" of this generation of IBM machines, analysts said. Rumors of Western Digital's possible acquisition of Tandon's disk-drive business began in August when the two firms revealed that they were discussing a joint manufacturing and marketing venture.

Roger Johnson, Western Digital chairman, said his company wanted more control over the disk-drive business than it would have had in a joint venture.

"We can probably have a lot more control over the design, manufacturing and quality if we do the whole thing ourselves," he said.

Move Orchestrated?

Some industry executives and analysts said Tandon's move was probably orchestrated by personal-computer industry pioneer Chuck Peddle, the former Victor Technologies chairman who was hired as a Tandon consultant and is now chief-operating officer.

However, Sirjang Tandon said: "I'm the guy who is running this company. I made the decision to go into a new direction two years back, so we are on that path."

Industry executives said they were not surprised by Tandon's decision because the company appeared to lack the money required to sustain both the personal-computer and disk-drive businesses.

"I would think that you probably can't do both," said Alan F. Shugart, chief executive of Seagate Technologies, a disk-drive maker in Scotts Valley, Calif.

Q. T. Wiles, chairman of MiniScribe--a maker of disk drives in Longmont, Colo.--said it has been difficult for Tandon to sell disk drives to personal-computer makers when the company is competing with them by selling its own personal computers.

"It's a major conflict that limits very much who you can sell to," Wiles said.

The disk-drive business is considered a highly competitive one. Most hard-disk drives are manufactured in Singapore, where parts and labor are cheaper than in the United States. Disk drives are devices that read and write data in personal computers using rigid platters that are 5.25 inches or 3.5 inches in diameter.

Tandon, which flourished in the early 1980s selling floppy-disk drives, has largely shifted to making the hard, 3.5-inch drives.

Tandon retains the rights to one disk-drive product--a removable drive that it launched with a publicity splash earlier this year. Thus far, it has had negligible sales.

Nearly 75% of Tandon's $258.9 million in sales in the nine months ended Sept. 30 came from personal computers.

Tandon's move into the personal-computer business has had mixed results. In late 1985, Sirjang Tandon hired four former IBM executives who had helped build that company's successful personal computer. Three of them have since resigned from Tandon.

Tandon's personal-computer product has been well-received in Europe, which accounts for more than two-thirds of the company's computer sales. But Tandon's personal computer has not made much of a dent in the domestic market. Sirjang Tandon said his company has not been able to finance its expansion plans adequately.

Tandon was unchanged Monday at 1.62 1/2 in over-the-counter trading. Western Digital closed at $12.25, up 25 cents, in trading on the American Stock Exchange.

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