CNET también está disponible en español.

Ir a español

Don't show this again

Christmas Gift Guide
Tech Industry

StorMedia files for bankruptcy

The thin film disk supplier files for Chapter 11 protection as the media market faces oversupply and tumultuous times.

Thin film disk supplier StorMedia has filed for protection under Chapter 11 bankruptcy laws, a move that comes as the media market faces oversupply and tumultuous times.

StorMedia, which has been a penny stock since September 1, fell 75 percent in morning trading to 0.0625, down from its close of 0.2500 on Friday.

StorMedia, which has posted six consecutive quarters of losses, plans to continue to operate as it sells off parts of the business, rather than trying to reorganize later as it tries to reemerge from bankruptcy, said William Almon, chairman and chief executive.

Although the company could have filed a Chapter 7 bankruptcy to liquidate the business, Almon said it chose Chapter 11 to accomplish the same result but allow greater flexibility in working with creditors. Chapter 11 allows companies to continue operating while they work out a reorganization plan to repay creditors. The company announced its bankruptcy plans Sunday and filed with the U.S. Bankruptcy Court for the Northern District of California.

"Because of the condition of the industry and pricing, it has deteriorated and has made it hard to overcome," he said.

Analysts note that StorMedia's demise will help benefit a saturated market -- a market that requires high capital needs. Companies tend to need to spend at least 30 percent of their revenues on capital expenditures.

"The media piece of the disk is the most oversupplied of everything [to do with the disk]. Having someone drop out is a good thing for the industry," said Gillian Munson, an analyst with Morgan Stanley Dean Witter. "The jury is still out on who will fall next. I think StorMedia was the weakest among the players. It may be someone in Asia or someone who losses their internal [thin film disk operations]."

Komag and HMT Technology are the domestic competitors of StorMedia.

Komag cut 10 percent of its workforce, or roughly 480 people, in the second quarter and posted a wider loss than Wall Street had expected, due to falling orders. The company's revenues have fallen from year-ago figures during the first half of this year, as its losses mounted. Meanwhile, HMT, which had been posting growing revenues and earnings, saw its performance also fall off a bit in the second quarter with revenues and profits dropping from year ago levels.

The company during the first six months this year had posted a loss of $48.7 million on revenues of $63.2 million. And last year, it has generated a loss of $99.1 million on revenues of $109.7 million. The company last year also held a mere 5.5 percent of the global rigid disk market share, which in total reached 416.45 million units, according to Trendfocus.

Under its reorganization plans, StorMedia has shut down its headquarters in Santa Clara, California, greatly curtailed its operations at all of its facilities, including those in Singapore and Malaysia. Prior to the bankruptcy filing, the company had employed 1,000 people worldwide.

StorMedia had tried several restructuring in the past, with its latest attempt in the second quarter. The company closed a facility and cut 300 jobs, but that apparently was not enough.

Munson noted that StorMedia has been cutting its workforce for over a year and that its most recent second quarter effort was more of a "Band-Aid" approach than a full solution.