Here's the entire KM section from the 3Q 10-Q:
Keepered Media Research and Development
Ampex has previously disclosed that it has been engaged in a research
and development program to attempt to commercialize its "keepered media"
technology for use in the hard disk drives that are attached to most computers.
A description of this technology and certain developments and uncertainties
related to the development program are set forth in the 1995 Form 10-K and the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996
and June 30, 1996 (the "March and June 1996 Forms 10-Q"). In order to
understand properly the following information, it is necessary to refer to
these earlier reports.
During the third quarter of 1996, Ampex participated with certain hard
disk drive and head manufacturers in tests of new generations of
high-performance inductive heads with keepered media. The Company believes that
all of the disk drive manufacturers with which it has been actively evaluating
keepered media are considering incorporating such heads into product programs
that have target introduction dates in 1997. These heads could be used with or
without keepered media. Therefore, the performance of keepered media with such
heads may significantly affect the commercial prospects of keepered media for
the near future. Initial tests with this generation of heads have indicated a
post-channel linear density gain of approximately 20%. Ampex believes that
additional capacity gains can be achieved by using the keepered media to
increase track density, in addition to linear density, and also by optimizing
read-channel electronics. However, pending completion of further testing and
development, there can be no assurance that additional improvements in capacity
can, in fact, be achieved. Additionally, it is not possible to forecast whether
the performance improvement afforded by keepered media will be of sufficient
magnitude to cause one or more disk drive manufacturers to adopt keepered media
for future production. (The terms "post-channel" and "linear and track density"
are explained in the March and June 1996 Forms 10-Q, respectively.)
In response to a request from a hard disk drive manufacturer, Ampex
submitted, during the third quarter, a number of keepered media disk platters
for testing of long-term stability and durability. To date, no results have
been received from this testing and it is not possible to forecast what the
results of such tests will be. The Company arranged to have these platters,
including the keeper layer, manufactured by a commercial vendor of disk
platters with which it has a non-disclosure agreement. The platters were
manufactured by the vendor using the same equipment that it uses in its normal
volume production of disk platters, which indicates that it is likely that
keepered media could be manufactured in commercial quantities, if required.
Ampex is assuming that it will be able, at least initially, to fill
any orders that it may receive for keepered media by purchasing complete
keepered disk platters from existing platter manufacturers. While it has
identified several potential suppliers of keepered disk platters, the Company
does not currently have a commitment from any of them to make platters
available nor any agreement as to the price or other terms on which Ampex could
obtain them, if requested.
Ampex believes that, at present, the major potential benefit of
keepered media would be to permit the attainment of leading edge performance at
a lower cost than would be possible using alternative technologies. The Company
also believes that lower disk drive component costs may be especially critical
in the high-volume, low price market segment for desktop disk drives, in which
manufacturers' gross profit margins are relatively low. Accordingly, Ampex has
now approached three manufacturers of hard disk drives that have significant
shares of the desktop disk drive market to determine their interest in
commencing a commercial product program incorporating keepered media. Ampex is
currently holding discussions and negotiations with these and other disk drive
manufacturers, but it is not possible at present to forecast whether any of
these companies, or others that Ampex may approach in the future, will, in
fact, undertake such a commercial product program.
Even if Ampex and a hard disk drive manufacturer were to agree to
begin to utilize keepered media in a
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product program, there can be no assurance that Ampex would generate any
revenues, because programs can be canceled at any time for technical or
commercial reasons, and firm orders for disk platters are not typically placed
until shortly before the disk drive is introduced to the market, which normally
occurs from six to 12 months after a program is initiated. There is also a risk
that any disk drive new to the market might not sell successfully due to the
customary risks associated with the introduction of a new product. Such an
outcome would negatively affect any revenues that Ampex could generate. Ampex
intends to offer especially favorable terms, including a low price, as an
inducement to the first disk drive manufacturer to institute a keepered media
disk drive program. Therefore, sales to the first such customer, if any, might
generate a relatively low profit margin compared to the margin that the Company
hopes to achieve if it is able to attract subsequent customers.
The Company believes that in order for it to generate material revenue
from keepered media during 1997, it will be necessary for a hard disk drive
manufacturer to commence a product development program incorporating keepered
disk platters by approximately the end of 1996. This belief is based on Ampex's
current understanding as to the time typically required to develop a new hard
disk drive and to introduce it to the market in volume. It is not possible to
forecast when, or if, keepered media may be included in any such program.
However, in order to minimize a potential delay that could result form the lead
time necessary to produce commercial volumes of suitable pre-amplifier chips,
Ampex is evaluating the funding of a design for such components from its own
resources. The expenditure required is estimated to be up to $1 million. The
Company has not yet committed to develop such a pre-amplifier chip, but if it
were to do so, there is a risk that the cost of developing the chip would be of
no benefit to Ampex if the Company had no alternative use for this component.
Ampex has previously disclosed that there are other technologies that
potential customers might prefer over keepered media, and that other competing
technologies of which Ampex is unaware could be under development or developed
in the future. (See the 1995 Form 10-K and March and June 1996 Forms 10-Q.) Any
such technologies could materially affect the commercial prospects for keepered
media. The development of keepered media could also divert the Company's
technical resources, which could negatively affect the Company's other research
and development programs, including improvements to the Company's mass data
storage product lines.
Significant expenditures and commitments for the development of
keepered media have already been incurred by the Company, and the Company will
be required to continue such expenditures in the future for as long as the
development program for keepered media continues. There can be no assurance of
financial return from these expenditures or commitments, and they could
negatively affect the Company's liquidity or require it to issue debt or equity
securities which would increase the Company's financial leverage or dilute the
earnings attributable to current shareholders of the Company.
While the Company believes that keepered media has the potential to
expand its business, in view of the uncertainties associated with its
development (some of which are described above), as stated in the 1995 Form
10-K and the March and June 1996 Forms 10-Q, it is impossible to forecast when
or if any commercial benefit will be realized by the Company. Since the
prospects for keepered media are highly speculative, there is a risk that the
market price of the Company's securities may experience increased volatility,
in addition to the volatility that may result from other factors affecting the
Company, such as changes in financial performance, analysts' estimates, or
product or technology announcements by the Company or its competitors. |
