Hard disk drive maker Quantum Corp is closing two plants in Malaysia and California and laying off 1,800 regular and 450 temporary employees.
The firm is assigning its products under exclusive contract to Matsushita-Kotobuki Electronics Industries Ltd (MKE), which already makes about 85% of its products
Quantum expects to report a charge of US$160 million to US$190 million from the moves in the company's fourth fiscal quarter ending March 31, 1996. The charge, two-thirds of which is non-cash, also includes the write-off of capital equipment and inventory and severance for employees affected by the closure of two plants.
In explaining the closure, Quantum regional marketing director David Rawcliffe said making the new generation of HDDs required a high level of factory automation which Matsushita-Kotobuki was best qualified to handle.
Matsushita-Kotobuki, a unit of Japan's Matsushita Electric Industrial Co, Ltd, has been making hard disk drives for the California-based Quantum since 1984. The relationship has been a key factor in the leadership position Quantum has built in the desktop market segment.
MKE has so far built more than 50 million drives for Quantum since the beginning of the relationship, with almost 20 million of those in the past year.
HDD Assembly Line in Malaysia
The change in strategy was described as risky given increasing pricing pressures and competitiveness within the industry. Quantum reported record sales of US$1.2 billion in quarter ended December 31, 1995 from US$932.7 million a year earlier. The strong showing was attributed to strong worldwide demand for HDDs, especially for the desktop PC market. Total sales were up 18% from US$1.0 billion last quarter, and desktop drive sales were up 23%. Unit shipments of Quantum hard disk drives for the quarter were an industry record, exceeding 5.8 million drives compared to 4.9 million drives shipped in the prior quarter. Quantum's five largest OEM customers accounted for 41% of the company's sales in the third quarter.
Peripherals to Focus on Drives
Quantum has two facilities in Malaysia; Quantum Storage (M) Sdn Bhd, which manufactures high-capacity HDDs and Quantum Peripherals (M) Sdn Bhd, which does diagnostics and remanufacturing operations.
Quantum Malaysia's president Gregg McKee says Quantum Storage (M) Sdn Bhd will close at the end of June, while Quantum Peripherals (M) Sdn Bhd will continue to operate. About 1,200 Quantum Storage staff, and about 160 Quantum Peripherals staff, involved in support functions, will lose their jobs as a result of the lay-off exercise.
McKee says Quantum Peripherals will retain some 330 employees and refocus exclusively on drive remanufacturing. Begun in 1994, Quantum Peripherals is the company's consolidated worldwide customer service operations. "While it is difficult to see valued employees lose their jobs, Quantum has made provisions for separation packages and will help them find new positions over the next few months," he said.
McKee, who is expected to be reassigned to a new position in corporate development in Quantum Corp's headquarters, says Penang may be considered for other business activities in the future.
Quantum Storage was the first high-capacity and high performance disk drive manufacturer in Malaysia and one of the first in the world to commercially produce high performance magneto-resistive HDDs.
McKee says Matsushita-Kotobuki will take over the manufacture of Quantum's current products including desktop products and high-capacity drives in the one- and two-gigabyte range and above.
Among the first high-capacity drives to be built by MKE will be the Atlas II products, two-, four-, and nine-gigabyte leading edge performance drives designed for mainstream server, mainframe, and RAID applications. "Consolidating and streamlining our business with MKE will result in higher efficiency and competitiveness in our business," he said.
McKee says Quantum Corp will now focus on designing, developing, marketing and providing customer-support services.
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