Data storage firm looks for huge return

THE BIG RISK

March 09, 1992|By Vicky Gits | Vicky Gits,Knight-Ridder News Service

BOULDER, Colo. -- When he was a top salesman for IB Corp. in the 1960s, Ryal Poppa heard then-IBM Chairman Tom Watson say that taking big risks was too dangerous.

After a brush with bankruptcy, brought about by an expensive product launch, Mr. Watson decided, "We will never, ever, ever, take a big risk again."

But Mr. Poppa was not daunted by his mentor's edict.

As chairman, president and chief executive officer of Louisville, Colo.-based Storage Technology Corp., which makes computer data storage devices, Mr. Poppa, 58, has elevated the game of risk-taking to an art. His willingness to take risks, combined with a talent for salesmanship and strategic thinking, has taken StorageTek from a bankrupt wreck to a darling of Wall Street.

In one year, the value of a share of StorageTek's stock has risen from $39 to a high of $75.

StorageTek has increased its bank account, established a reputation, sold $1.3 billion of tape libraries and has big plans to become the IBM of computer storage. It's a do-or-die proposition and could double StorageTek's revenues. Incredibly, it has practically no competition.

Since Mr. Poppa took over the helm of StorageTek in 1985, the firm has come a long way:

* Employment has risen to 4,862 at two locations in Boulder County, up from 4,450 a year ago and a low of 3,300 in 1985. StorageTek has 10,000 employees worldwide.

* 1991 sales were $1.4 billion, a 101 percent increase over 1986.

* In August, the company expanded into a 542,000-square-foot plant in Longmont -- the very factory that it had been forced to abandon during its bankruptcy years.

* The company is building a health club and day-care center for its employees at Louisville.

* As of April 1991, StorageTek was ranked 311 on Fortune magazine's Top 500 list, up from 342 in 1989.

All of which is impressive for a firm that in the mid-1980s was perilously close to oblivion, declared bankruptcy in 1984 and emerged in 1987.

IBM, meanwhile, is posting big losses, reducing its work force and trying to find a direction. IBM is the county's second-largest employer.

"You don't build a great company by not taking a risk," Mr. Poppa said.

He is by no means resting on his laurels. His goal is to make StorageTek a $3 billion (in sales) company by 1993 and raise that to $7.5 billion by 1995.

He has spent the last six years positioning StorageTek for an assault on the big leagues by abandoning its IBM look-alike strategy and seeking its own identity through revolutionary new products.

StorageTek has made many major announcements in the last 12 months, but in January, it made the biggest one in the company's history.

StorageTek unveiled Iceberg, a computer storage device designed for the mainframe computer market. In computer talk, "announced" means a lot of things, ranging from "We're thinking about this" to "It's a done deal." In StorageTek's case the product was nearly complete, but had not been through the field-testing process.

Targeted for customers such as airlines and banks that need to store vast amounts of data with round-the-clock access, Iceberg is a departure from the traditional approach to data storage.

Instead of using large, expensive magnetic storage disks, Iceberg consists of small, inexpensive disks, similar to the storage devices in personal computers.

StorageTek claims Iceberg is virtually failure-proof, its chief advantage.

Development work on the Iceberg began in 1987 in a poorly heated warehouse that gave rise to the product's name. StorageTek has spent $145 million on research and development for Iceberg, which comes in various sizes and averages about $1.6 million.

StorageTek has said it expects to sell 1,000 to 1,200 Icebergs in 1993 and 2,400 in 1994.

The company has said it already has commitments for $150 million in Iceberg sales -- with $50 million expected in 1992 -- but it declined to name customers.

The market for large-scale storage devices, such as the ones StorageTek specializes in, is about $12 billion a year and is growing at an annual rate of 30 percent, Mr. Poppa said. StorageTek has only 1 percent of that market. IBM has more than 60 percent. Most of the rest is divided among Amdahl, Fujitsu and Hitachi Data Systems.

Industry analysts are raving about Iceberg.

The response has been so positive that StorageTek's stock jumped 65 percent from $40 Dec. 31, to $66 Jan. 28, when Iceberg made its debut.

But is the product really worth the hype?

One analyst, who requested anonymity, said StorageTek may be overly optimistic about sales potential.

"A thousand to 1,200 units in 1992 is $1.5 billion out of a $10 billion market," the analyst said.

Price could become a big issue.

"If you are Hitachi and IBM, and you are going to lose a big market share, you are going to lower your price until it's competitive," he said.

StorageTek's two- to three-year lead on the competition is impressive, the analyst said, but the question is whether splurging on Iceberg is worth it.

"Nobody has an identical [product]," he said. "But there are other ways to solve a problem."

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