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THE TIMES 100 : THE GIANTS : Maxtor Resurges With Low-End Disk Drives : The San Jose company overcame a difficult merger and delays in getting new products to market to stage a memorable comeback.

April 27, 1993|CHRIS WOODYARD | TIMES STAFF WRITER

When Laurence R. Hootnick took over as president two years ago, computer disk drive manufacturer Maxtor Corp. seemed headed for a crash.

The San Jose company had a tired product line. A merger had left the company divided rather than strengthened. Even worse, Maxtor was nearly out of cash.

"There was almost nothing left," Hootnick sighed. "The gloomiest day was when I found out we didn't have any money."

Hootnick, however, engineered a comeback. A former vice president at semiconductor manufacturer Intel Corp., he pared Maxtor's swollen inventory and funneled the proceeds into new product research. He sold non-core businesses, such as a Malaysian assembly plant, to help tighten the company's focus on disk drives.

When the market for disk drives turned favorable last year, Maxtor was ready with new, low-cost products that won raves, and sales, from some of the industry's major personal computer manufacturers.

Maxtor's resurgence won it two spots among The Times 100 companies for 1992. Its sales soared 43%, to $1.37 billion last year, placing it No. 31 on the Growth 100 list, which measures year-to-year revenue gains.

The company also registered one of the best corporate comebacks in 1992, as determined by the absolute change from loss to profit in a year. After losing $65.8 million in 1991, the company posted a profit of $89 million last year.

"Everyone thought they weren't going to make it," said Andrew J. Neff, an analyst for investment firm Bear, Stearns & Co. in New York, who credits Maxtor for its new products and strong balance sheet.

"They were facing a lot of major troubles," added Todd D. Bakar, an analyst for the Hambrecht & Quist brokerage in San Francisco. "I think the new management team did an excellent job of turning this company around."

Since its founding in 1982, Maxtor has grown into one of the leading makers of hard disk drives--a volatile segment of the computer industry. Competition is so fierce and frequent price wars so ferocious that foreign companies have shied away from challenging the dominant California manufacturers. As a result, analysts such as Bakar and Neff are impressed by Maxtor's progress, though hesitant about short-term prospects for the overall industry.

Maxtor, with nearly 9,000 employees, ranks No. 4 in market share in its industry, with slightly more than 10% of sales, according to Dataquest, a San Jose market researcher. Its share is smaller than Silicon Valley rivals Seagate Technology, Conner Peripherals and Quantum Corp.

For years, Maxtor's specialty was making high-performance, high-capacity disk drives. To expand its product lineup, it bought MiniScribe Corp., a Colorado firm that makes lower-cost, medium-capacity disk drives, in 1990.

But Hootnick said it was a bad marriage at first. Attempts to integrate the two companies weren't working, and that was bogging down product development. Meantime, debts were piling up faster than the company could pay them.

Maxtor sold its Malaysian head-stack assembly plant to Read-Rite Corp., a Milpitas company. It restructured its global manufacturing operation, which includes plants in Hong Kong and Singapore. Maxtor also signed an agreement with Sequel Inc. to make its oldest and hardest-to-manufacture disks, freeing the company to produce more advanced drives that can be manufactured more cheaply.

When demand for disks started booming last year, Maxtor was ready with a fresh product line and lower production costs. Hootnick has bolstered research and development. The goal, he said, is to create a line in which no product is older than nine months.

That should help Maxtor remedy a recurring problem: being too slow to market with new products. "They have a lot of proving to do," said analyst Paul G. Fox of Montgomery Securities in San Francisco.

But getting products out quickly isn't the only problem. The industry is glutted with disk drives, resulting in falling prices and profitability for manufacturers. Nevertheless, analysts say Maxtor appears well-positioned for the long haul.

"They are coming out with low-cost products," Devin said. "They had an excellent relationship with IBM . . . with a good thrust into distribution."

Peter Lieu, an analyst with Furman Selz Inc. in New York, said the company has a strong balance sheet with $100 million in reserve, and a strong product line. Maxtor "completely reorganized manufacturing so they produce more revenue per dollar of capital invested than any other disk drive company," he said.

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