From AXC's 6/30/96 10Q:
Keepered Media Research and Development
The Company has previously disclosed that it has been engaged since late 1994 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 the technology and certain developments and
uncertainties relating to the development program are set forth in the 1995 Form 10-K and the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 1996 (the "March 1996 Form 10-Q"). In order to properly understand the following information, it is necessary to refer to these previous reports.
In the March 1996 Form 10-Q, the Company disclosed that two manufacturers of hard disk drives had executed non-disclosure agreements with the Company relating to keepered media, and that it was engaged in testing activities with both companies. It was also disclosed that joint testing between Ampex and one of those companies had obtained various results,
including a performance improvement of approximately 33% for keepered media with a "Tri-Pad" pseudo-contact head. The improvement was measured on a post-channel basis, using test methods that the companies believed to be representative of actual hard disk drives. During the second quarter of 1996,
Ampex and the other hard disk drive manufacturer referred to above conducted a similar series of tests using keepered media with a different type of pseudo-contact head made by another head manufacturer. In this case, joint test measurements indicated a 38% performance improvement for keepered versus unkeepered disk platters. Ampex believes that the improved results in the
second set of tests are due to various factors, most significantly, the iinclusion in the measurements of improvements in track density performance as well as in linear density. The first set of joint tests attempted only to measure linear density. (Linear density refers to the number of bits of data that can be recorded and retrieved accurately on a single circular track on a disk. Track density refers to the total number of tracks that can be recorded
on a disk while still permitting the disk to be read back accurately. The total capacity of a disk is a function of both linear and track density.) Recently, a third U.S. owned hard disk drive manufacturer entered into a non-disclosure agreement with the Company, and the Company held an initial meeting with this manufacturer to discuss its interest in evaluating keepered media but, to date, the Company has undertaken no further activity with this manufacturer.
It is still not possible for the Company to predict whether
post-channel improvements of the magnitude indicated above will be sufficient to cause hard disk drive manufacturers to adopt keepered media. As previously disclosed, Ampex knows of at least two other technologies that customers might prefer over keepered media, and there may be other technologies, of which Ampex is unaware, which are in development or may be developed in the future. Based
on current test results, Ampex now believes that one of these technologies,contact recording, may, in fact, be complementary to and benefit from use with keepered media. The other known technology that customers may find to be preferable to keepered media is magneto-resistive head technology. While Ampex
is conducting research into the use of modified magneto-resistive heads with keepered media, there can be no assurance that such designs are, in fact, feasible. In addition, such modified magneto-resistive heads are unlikely to be available for incorporation into commercial products for at least the next
several years, which would represent a significant deferral of any revenues to Ampex from the use of keepered media with this technology. There can be no assurance that any such commercial products combining magneto-resistive heads with keepered media can be developed, or would be successful.
Ampex's strategy currently assumes that it will be able, at least initially, to fill any orders for keepered media that it may receive, by purchasing complete keepered disk platters from existing manufacturers of such platters. Accordingly, the Company has been actively involved in evaluating and applying keeper layers to disk platters manufactured by existing commercial suppliers. One foreign and three U.S. based disk platter manufacturers have entered into non-disclosure agreements with Ampex, and Ampex has received
sample media from two additional manufacturers, StorMedia Incorporated and IBM Corporation, on a non-confidential basis. To date, Ampex has applied keeper layers to media from three of these manufacturers with generally similar improvements observed in each case.
At the request of a specific hard disk drive manufacturer, Ampex intends to prepare a number of keepered media platters to be tested for long-term stability and durability. The Company may seek to have such platters, including the keeper layers, made by one of the disk platter manufacturers referred to above. At present, the Company does not have the agreement of any
of them to make such platters available. In addition, while Ampex believes that durability should be acceptable, based on the materials and methods employed in the manufacture of keepered media, Ampex has not previously subjected keepered platters to these tests and there can be no assurance that they will prove to
be satisfactory.
The Company believes that in order for it to generate any 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 introduce it to the market in volume. It is not possible for Ampex to forecast when, or if, keepered media may be included in any such program. While the Company believes that various tests of keepered media will continue to be required, it may elect to focus more of its resources on testing with companies that indicate interest in early development of commercial
products and to reduce its efforts with any that do not.
As disclosed in the Company's March 1996 Form 10-Q, the Company has not yet had substantive discussions with any hard disk drive maker relating to potential purchases of keepered media, or other commercial arrangements. Additionally, the Company at present has no assurance that existing disk platter suppliers would make product available if so requested. The Company may
also be required to incur significant expenditures or commitments for the further development of keepered media, with no assurance of financial return. These expenditures could negatively affect the Company's liquidity or required it to issue debt or equity securities, which would increase the Company's financial leverage, or dilute the earnings attributable to current stockholders of the Company.
The Company has become aware of publicly available information concerning a possible deterioration in business conditions in the disk drive and disk drive component industries. It is not possible for the Company to forecast what effect, if any, a negative trend in disk drive industry profitability may have on the commercial prospects for keepered media. It has also been publicly announced that Hewlett Packard, which Ampex believes to be
one of the eight largest disk drive manufacturers, intends to close its disk drive manufacturing operations. Ampex has not been in contact with Hewlett Packard Company regarding keepered media.
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 1996 Form 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. |
