In those days, most computers came without much memory for storing programs, so customers quickly found they needed to add hard disk drives to their machines to run increasingly complex software applications. CMS supplied those drives--with high volumes and low profit margins--as well as the myriad adapters required to make PCs more versatile.
Investors flocked to the company's stock, sending CMS' price to a record of $36 a share in early 1987, well above the $2.12-a-share close on Friday. By June, 1989, the company reported sales of $200 million, thanks largely to a deal to distribute and enhance disk drives made by Seagate Technology Inc., the world's largest disk drive company.
But the dependence on Scotts Valley-based Seagate also caused CMS to falter. During late 1988, the company began experiencing quality problems with Seagate drives. Several key officers left to start their own companies, partly because CMS wasn't willing to invest more money into research and development.
Other firms sprang into the void to compete with CMS. One of these was Procom Technology Inc., an Irvine company founded in 1987 by Alex Razm'joo, a former engineering chief at CMS.
While CMS concentrated on shipping products manufactured by other companies to the retail market, Procom stole market share in the higher end of the market by offering custom-designed storage equipment for networks of computers, Razm'joo said.
Another unexpected spinoff from CMS, MicroNet Technology Inc. in Irvine, took a large share of CMS' business by targeting customers interested in enhancements for computers made by Apple Computer Inc.
"The spinoffs hurt us because they tapped into a lot of good customers and employees," Farooquee said. "Once you lose a key group, you lose momentum and you get pockets of people who do their own thing."
CMS expanded in June, 1988, by acquiring a tape drive manufacturing business, but that business went sour and eventually led to several million dollars in write-offs. In January, 1989, co-founders Tarkeshian and Ong left.
Ong, 64, said he left the company partly because of friction in upper management, partly because he was tired of the punishing 12-hour days that the younger Farooquee worked.
"For the past few years since I left, everything went to Jim's shoulders, and I believe he has suffered quite a bit," Ong said.
Farooquee agrees.
"We let it get out of control," Farooquee said. "All those problems happening at the same time collapsed our infrastructure. We tried to fix it by throwing more people at the problem, but it continued to spiral and we kept losing market share."
As prices fell and technology advanced, the company found that its once-unique, low-cost line of hard disk drives no longer stood out from a host of other disk drive manufacturers, who engaged in a withering price war in 1990 and 1991.
The collapse of its tape drive business led CMS to report its first loss--$8.5 million--for the fiscal year ended June 30, 1991.
Farooquee got desperate, and that led to what he calls CMS' "second mistake." Farooquee decided he could only make money by diversifying into the computer systems business, but he had trouble lining up the financing until he managed to cut the deal with TriGem Corp., the U.S. subsidiary of computer maker TriGem Korea in South Korea.
Competitors at AST had successfully made the transition from making computer add-on boards to building complete computers in the mid-1980s. But when Farooquee announced his TriGem venture in November, 1990, he was four years behind AST.
The joint venture seemed perfect. TriGem had been itching to enter the U.S. market, establishing its own U.S. subsidiary in Santa Clara the year before. TriGem also had clout; it was South Korea's biggest computer manufacturer with $300 million in sales in 1990, largely by making computers for Epson Corp.
TriGem had invested more than $15 million in a new line of computers for the U.S. market, including several low-priced models and a novel computer workstation that was a clone of Sun Microsystems' popular system.
Farooquee, ever the salesman, was there to cut the deal. He figured that CMS' marketing clout in the United States would fit well with TriGem's ability to manufacture inexpensive computers and its technical wherewithal.
CMS originally targeted the segment of the computer industry that is under the heaviest pressure from a new group of computer retailers known as super-stores. It promised independent computer dealers who sold its ESP brand computers that it would be able to ship them supplies within 48 hours.
But confusion over pricing and slow deliveries from the South Korean manufacturer strained relations between the two partners, and it drove computer dealers away. Farooquee declines to say how many have left.
Stanley Jung, vice president and general manager of TriGem Corp. in San Jose, a subsidiary of TriGem Korea, also attributed the failure of the joint venture to cultural differences with CMS.
