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September 17, 1998

ADAPTEC TO SPIN OFF UNITS IN EFFORT TO LOWER COSTS

By CBR Staff Writer

Ailing bandwidth management company Adaptec Inc’s latest cost- cutting moves will see it spin off several businesses. The Milpitas, California company, which has seen its earnings hit the skids over the past three quarters, is narrowing its focus by more or less exiting the satellite networking, external storage and Fibre Channel businesses. It said significant markets for those products won’t exist soon enough for the company’s liking. Adaptec will spin the units off through partnerships it has built with other companies and will maintain equity stakes in the businesses while continuing to work with their new owners on furthering the technology. It hopes to thus leverage the work its already done in those areas while further reducing operating expenses. Interim chief executive Larry Boucher admitted that the company had its irons in too many fires, and said that, going forward, it will focus on the RAID, SCSI and software businesses. RAID is being billed as a key to the company’s future and Boucher said it will invest whatever is necessary to be a leader in that space. With regard to SCSI, Adaptec feels that no company is in a better position to exploit the expected growth of the server business. On the software side Boucher promised that the company has several products in the pipeline that should bring new, high-margin revenue in the near future. The latest actions will result in a charge of about $0.25 per share to be taken in the current second quarter. Adaptec also warned of a revenue decline of about $10m from the first quarter and projects a total of about $140m to $145m. When asked whether that level should be seen as a low point for the company, Boucher said I sure as hell hope this was the low point. Net of charges, the company still says it should hit Wall Street estimates, which call for a break- even bottom line. The company said it has eliminated 850 jobs since April, when it began its sweeping restructuring actions. Its goal is to reduce operating expenses to below 35% of revenue and hit profit levels in the mid-teens in the near future.

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