History (1998): French Disk Head Maker Silmag in Turnaround

France is not really making it in the storage industry.

After the collapse of Gigastorage, the 5.25-inch HOD manufacturer, and the dismantling of tape maker DDF Pertec, it’s now Silmag, which bills itself “the leader in planar recording heads,” that has sought turnaround protection with the Tribunal of Commerce in Grenoble, France, after failing to make payment since January 30.

The company now has 6 months of relief from creditors, and its directors have the possibility of finding a solution to extricate the firm from its impasse. This opens the way to an eventual acquisition offer (by a manufacturer of heads? drives?) to the court.

How did Silmag get to this point? Officially, “the Korean crisis at the end of 1997 and the resulting dearth of cash in that country provoked a serious problem for the company’s treasury, in spite of a confirmed order.”

In other words, Silmag’s largest and only name client, the Korean firm Samsung, placed orders, but could not pay Silmag due to a lack of dollars in Korean banks. Hubert Jouve, Silmag’s co-founder and administrative and financial director, rejects the notion that Samsung is gradually turning away from drives in favor of MR heads-which Silmag bypassed, moving directly to GMR heads even though the French firm only furnished thin-film inductive heads in the past.

Samsung, incidentally, was IBM’s first customer for MR heads, but according to Jouve the agreement between the two companies was broken off.

“Drives with MR heads represent no more than 10% of Samsung’s production,” says Jouve, who is still optimistic about the future. “We filed for turnaround in order to guarantee the future, freeze past debts and continue to function.”

If, in the next 6 months, no solution is found, Silmag will find itself in bankruptcy, but the judge could authorize an extension of the turnaround period.

Founded in 1991 on the technological developments leftover by the Grenoble-based LETI lab, Silmag is the only company in the world that offers planar heads for HDDs. The company sold 15 million heads to equip some 4 million drives throughout the world. Its production in 1997 alone was 10 million heads. According to Jouve, the firm employs 550 people, with another 200 in Italy, and reported sales of FF280 million (including sales of partner DMC in Italy) in 1996. The company does not appear to have cleared a profit, and sales figures for 1997 have not been disclosed.

A capital stake of over FF100 million is divided among the company’s founders (45%), French VCs (45%), including Sofinova, a few Japanese firms (5%) and American investors (5%).

Silmag invested nearly FF50 million in 1995 to open its factory in Saint-Égrève, near Grenoble, in a former Thompson site.

In 1996, the company acquired DMC, one of its principal shareholders, in Italy, and established a subsidiary in Saratoga, CA.

“We will keep working,” asserted Jouve. “We are releasing a new slider format at the end of 1998, beginning of 1999 and our production of GMR heads will commence next year.”

Even so, the company is further than ever from its dreams of an IPO on Nasdaq, a goal outlined to us by Jean-Pierre Lazzari, Silmag’s scientific director, during the 1996 Head/Media Conference in Las Vegas, NE.

This article is an abstract of news published on issue 121 on February 1998 from the former paper version of Computer Data Storage Newsletter.

Note: Silmag was declared in bankruptcy in June 1998.