Read-Rite to lay off hundreds locally Job cuts at Milpitas, Fremont result of sagging demand
BY MIGUEL HELFT Mercury News Staff Writer
Posted at 1:47 a.m. PST Thursday, March 12, 1998
Richard Shimek has worked at Read-Rite Corp. for seven years, first at company headquarters in Milpitas and more recently at a manufacturing plant in Fremont he helped design.
When he arrived Wednesday, two months short of his 50th birthday, Shimek was told he no longer had a job.
Shimek, a manufacturing engineer who earned the maker of disk drive equipment two patents, was among about 250 other employees laid off -- 10 percent of the company's U.S. workforce.
The job cuts at the company's facilities in Milpitas and Fremont are an attempt by the troubled maker of recording heads for disk drives to cut expenses in the face of declining profits and shrinking demand. The cuts underscore that as strong as the Silicon Valley economy is overall, there are still some trouble spots.
Read-Rite warned last week that it would suffer a worse-than-expected loss in its fiscal second quarter. The news followed a report last month that first-quarter profits were down significantly and that the company was likely to face rough times for several quarters.
''Demand throughout the industry is down,'' said John Kurtzweil, Read-Rite's chief financial officer. The company cut jobs at all levels, in manufacturing, administrative and managerial departments, Kurtzweil said.
In recent months, many of the giants of the disk drive industry have faced similar troubles. In January, Scotts Valley-based Seagate Technologies Inc., the largest independent disk drive maker, said it would lay off 10,000 workers, or 10 percent of its worldwide workforce. Quantum Corp. of Milpitas recently reported a loss of $32 million for the third fiscal quarter of 1998.
Analysts blame overcapacity, as companies that control most of the industry have flooded the market with drives and pushed prices downward.
''The disk drive industry is very cyclical, and they are going through a hard time,'' said David Chiang, an analyst with Nikko Research in New York. Chiang said that given Read-Rite's size -- the company employs about 23,000 workers worldwide, most of them in Asia -- the layoffs are not dramatic. ''I think it is just a reshuffling,'' Chiang said. ''I don't think it is a big deal.''
Kurtzweil also said that recent warnings of slowing business from Intel Corp. and Compaq Computer Corp. are already trickling down to companies such as Read-Rite.
''You would be surprised as to how fast the whole channel reacts to changes in demand,'' Kurtzweil said.
Read-Rite did not formally announce the layoffs on Wednesday. The company's stock closed at $12.59, up 3 cents. It had traded above $30 a share a year ago.
During an employee meeting in January, company officials told workers that they expected Read-Rite to emerge from its troubles fairly quickly and that there would be no layoffs.
But several laid-off workers said the downsizing did not come as a surprise.
''The rumor mill was that it was going to happen,'' said one laid-off worker who asked not to be identified.
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