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May 10, 1988

MAXTOR’s ERASABLE OPTICAL DRIVES SPOOK SHARES OF WINCHESTER DISK MAKERS

By CBR Staff Writer

The enormous increase in capacity – coupled with the simplicity with which the medium can be made exchangeable rather than fixed – always meant that the days of ferro-magnetic storage would be numbered once erasable optical disk drives became established, and that day came a whole lot nearer this week when Maxtor Corp announced its first two erasable optical drives – and indicated that most of the performance problems were on the way to being licked (CI No 925). On Monday, shares of the leading OEM Winchester makers shivered with apprehension at the Maxtor announcement, Seagate Technology falling $1.375 to $16.875, MiniScribe Corp off 62.5 cents at $10.50, Micropolis Corp off 50 cents at $22.75, and Control Data Corp – which has been a strong market of late on gossip of stakebuilding from Canada – eased 25 cents at $26.125. Maxtor Corp, which had been strong last week ahead of the announcement, put on 87.5 cents at $14.25. As well as the threat from erasable optical drives, investors are concerned about possible overcapacity in the maturing Winchester market. The mood wac not helped either by a presentation from Seagate Technology chief Alan Shugart at a Hambrecht & Quist conference in San Francisco last week. Shugart insisted in his talk that any concerns about the impact of optical disk drive products were premature, adding that while there are market niches for optical storage, it would be another three years before anybody had an erasable optical drive on the market, suggesting that the drives were not yet economically feasible. But according to the Dow Jones Professional Investor Report, one trader in Seagate shares said that some money managers apparently came away from the Seagate presentation with concerns that increasing capacity in the industry would soon lead disk drive companies to increase their focus on market share, at the expense of operating margins, with the potential for overcapacity looming. Shugart said Seagate would increase its production capacity to 50,000 a day over the next few years from the current level of 30,000; unit ships should rise 45% in the year to mid 1989.

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