This major vendor of hard disk drives for use in personal computers and workstations, also makes recording heads and tape drives. Operating margins, which narrowed in FY 96, on lower than expected sales that resulted from component shortages and weakness in the high-capacity drive segment, narrowed further in the first half of FY 97, on lower than expected PC demand and product transition issues. However, operating profitability improved in the third and fourth quarters of FY 97 and should widen further in FY 98, on the benefits of a restructuring in the high-capacity drive segment, as well as operating efficiencies in the head segment, the shipment of new products, and continued cost controls. The shares have risen sharply from their mid-1996 lows, reflecting higher PC unit shipments, progress in the introduction of new products and improvements in the company's high capacity disk drive business. While recording head operations remain unprofitable, we expect manufacturing yields on heads to continue to increase in FY 98.
Demand remains strong for the company's drive products, and the pricing environment is favorable.
Strong relationships with major OEMs, and increased confidence in continued profit growth make us bullish on the shares. The Workstation and Systems Storage Group are designed for high-end desktop systems, workstations, RAID subsystems, servers and minicomputers. The Specialty Storage Products Group makes 0.5-inch linear tape drives, tape autoloaders and tape libraries as well as solid state disk drives. The Recording Heads Group designs, develops and manufactures both thin film inductive and magnetoresistive recording heads used in the company's products. Quantum continues to perform manufacturing for its head operations and tape products.