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Maxtor bows out of network storage biz

A small market and brand blues push the hard drive maker to nix its network storage system product line.

Hard drive maker Maxtor has discontinued sales of a network storage system product line, citing a smaller-than-expected market and difficulties establishing a brand.

The company tried to sell the business that sells the MaxAttach product line, but couldn't find satisfactory terms, spokeswoman Diana Cartwright said. Maxtor will lay off 230 employees as a result, 150 immediately and most in the company's Milpitas, Calif., facilities. It will also take a charge of $75 million to $85 million in the third quarter as a result of the decision, the company said.

The MaxAttach line generated revenue of $31.5 million out of a total of $3.8 billion in overall sales for the company in 2001. But the line lost $50.9 million that year. In the most recent quarter, it had revenue of $13.1 million and a loss of $9 million.

Maxtor specializes in hard disks, the vast majority of which are sold to computer makers. In 1999, the company expanded to sell the MaxAttach line of network-attached storage systems, essentially a server that could be used to share files over a network.

The idea was to sell products with better profit margins than mere hard disks, but the change in product also meant a change to a different set of customers. Meanwhile, competitors such as Quantum, Network Appliance, Dell Computer, IBM and Hewlett-Packard offered competing products.

"It was a competitive marketplace to create a brand," Cartwright said. Maxtor's expertise was in creating a brand, and the network-attached storage product line wasn't growing as fast as predicted, she added.

In addition, the company's MaxAttach line competed with products from the same computer makers that bought Maxtor drives, Chief Executive Mike Cannon said in a statement. "Exiting the (network-attached storage) business will allow us to focus on our core hard disk drive markets, further reduce expenses and accelerate Maxtor's return to profitability," he said.