History 2003: Read-Rite Filed for Chapter 7

There are only a half-dozen or so small magnetic rigid disk head manufacturers left in the world, and one fewer now: Read-Rite, has filed for Chapter 7 proceedings under the U.S. bankruptcy code.

Its last 6-month financial period ending in March was catastrophic, with sales of $90 million and a net loss of $87 million. The company no longer had enough cash to pursue the highly capital intensive business.

Lately, too, it was incapable of being time-to-market for the current wave of 80GB-per-disk heads, with its greatest production resources still focused on 40GB-per-platter units, and even there it was also behind.

Read-Rite’s demise is likely to have some impact on the HDD market, notably in the form of a rise in the cost of heads, and subsequently drives.

Indeed, if you look at 2002 figures supplied by Trendfocus, which boasts the best analysts in the business, the head market was divided in 2 camps: those that also assemble the drives (Seagate, HGST and Fujitsu), representing 66% of WW production, and the remaining independent manufacturers, essentially 3 firms, SAE/TDK, by far the leader, then Alps and until recently, Read-Rite.

Although few people know it, the HDD heads account for about a quarter of TDK’s overall revenues, projected at ¥635 billion or $5.4 billion this year, while the firm estimates that it holds one-3rd of the worldwide head market.

Now we’re left only with the 2 Japanese producers, who may take advantage of the end of their rival by hiking up prices for their heads, a crucial component in all HDDs.

The HDD manufacturers that would be hurt the most clearly would be those that don’t have their own head manufacturing operations, namely Maxtor, Samsung and Western Digital – Read-Rite’s 3 largest customers, as it happens.

All 3 are carefully watching to see who will buy the bankrupt plant, now for sale on the outskirts of Bangkok. Will it be an independent or a captive head maker?

Read-Rite, headquartered in Fremont, CA, began in Milpitas, CA, in 1981 when 2 co-workers at Memorex struck out on their own for the glamorous world of magnetic disk recording heads. Its first moneymaker was the Microslider, introduced in 1989, a smaller and more efficient version of the device that carries the head over the rotating disk to process information.

1991 was a particularly important year for the company, with an IPO and the acquisition of Conner Peripheral’s and Maxtor’s head plants in Malaysia, along with the establishment of a joint-venture, Read-Rite SMI, with a branch of Sumimoto. In 1994, the firm acquired Sunward Technologies in the Philippines, but was nearly acquired itself by Applied Magnetics.

The company peaked in 1996, with sales of $1.2 billion. Hoping to diversify with optical components activities, Read-Rite funded Scion Photonics in 2000, only to sell it off 2 years later to JDS Uniphase.

This article is an abstract of news published on issue 186 on July 2003 from the former paper version of Computer Data Storage Newsletter.

Note: In July 2003, Western Digital Corp. received bankruptcy-court approval to acquire substantially all of Read-Rite Corp.’s assets for about $95.4 million in cash.