From 10K - Keepered Media Development Program
During 1994, the Company initiated a technology research and
development program to explore the feasibility of commercializing its invention
of a proprietary magnetic media technology referred to as "keepered media." This
invention was patented in 1991, and the Company has pending patent applications
for related inventions. Specifically, the Company's program involves the
development of magnetic disks employing keeper layers for use in the hard disk
drives that are attached to most computers. Keepered magnetic disk media are
designed to improve the capacity of hard disk drives, primarily by reducing
magnetic "spacing losses" resulting from the separation between the magnetic
disk and the read head and by shielding the read head from magnetic signals not
directly under the head. The Company believes that this technology provides
significant capacity
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improvement with only a nominal incremental manufacturing cost. The Company also
believes that this technology may have potential application in flexible
magnetic media, such as floppy disks and magnetic tape.
In December, 1996, Ampex announced that it had entered into an
agreement with Maxtor Corporation ("Maxtor"), a disk drive manufacturer,
pursuant to which Maxtor may acquire keepered media disk platters for use in
Maxtor's hard disk drives. Maxtor has advised Ampex that it is developing a disk
drive program incorporating keepered media, which Maxtor has indicated it
expects to introduce in the later part of 1997. Maxtor is a leading producer of
disk drives, primarily for desktop and mobile computer systems. According to
published sources, its market share in 1995 was approximately 8% of the
worldwide total. Maxtor is an independently operated member of the Hyundai group
of companies, which had worldwide revenues in 1995 exceeding $23 billion.
Maxtor, as the first disk drive manufacturer to invest in a product
program utilizing keepered media, has received favorable economic terms from the
Company. In addition to agreeing to a relatively low profit margin, Ampex has
agreed, for the initial term of the agreement, to ensure that Maxtor's price per
unit for keepered media is lower by a fixed percentage than that charged to any
other customer. Ampex has also committed to co-fund the development of a
preamplifier chip required by Maxtor for use with keepered media, for up to
$250,000. In return, Maxtor agreed that the manufacturer of the preamplifier
chip so funded will be free to sell such product to other disk drive
manufacturers.
The agreement with Maxtor is for an initial term of three years, and is
renewable for an additional three year term at Maxtor's option, subject to
certain conditions, on terms no less favorable than those given any other
manufacturer selling similar quantities in like circumstances. Maxtor is not
bound by the agreement to complete a disk drive program or to purchase any
minimum quantity of keepered media platters. However, unless certain minimum
quantities are purchased by specified dates prior to March 31, 1998, Ampex will
have the right to terminate the agreement or alter its terms.
The agreement also provides that, if Ampex develops the internal
capability to manufacture keepered media for sale in commercial volumes, Maxtor
will use reasonable efforts to include Ampex as a supplier, subject to
negotiation of a purchase agreement and qualification of Ampex as a vendor.
Ampex has not yet decided to commence commercial manufacture of keepered media,
and is unable to forecast when or if it will do so. Accordingly, in order to
enable Maxtor to commence production in accordance with its current schedule,
the agreement permits Maxtor to acquire keepered media from independent media
manufacturers approved by Ampex and/or to manufacture media at Maxtor's own
facilities for sale by it.
The Company is continuing to negotiate with other manufacturers that
could become customers for keepered media. However, Ampex may not continue to
offer the favorable pricing and other terms it had offered prior to the
conclusion of the Maxtor agreement. Accordingly, there is no assurance that any
other manufacturer will agree to purchase keepered media, or that Ampex could
obtain pricing or other terms from other manufactures that Ampex regards as
favorable or acceptable. In addition, there could be unforeseen technical or
economic reasons why manufacturers would not proceed with the technology. Ampex
does not anticipate receipt of significant revenues from its keepered media
program before fiscal 1998, although limited revenues could be generated later
in 1997. In any event, there can be no assurance as to the timing or amount, if
any, of revenues that Ampex may generate from the Maxtor arrangement or from any
agreement which the Company may conclude with other manufacturers with which it
has had discussions.
To date, Ampex has directed the majority of its keepered media
development efforts to potential disk drive programs that employ inductive
heads, which according to published reports are used in the majority of disk
drives currently in production. However, a number of disk drive manufacturers
have expressed an intention to effect a transition to magneto-resistive heads in
all or a substantial portion of their disk drive production in the future. In
early November 1996, Ampex, together with a disk drive manufacturer (other than
Maxtor) and a head manufacturer, participated in tests of keepered media with
magneto-resistive heads. The tests included a demonstration of the activation of
the keeper layer by a magneto-resistive head of a common
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design. While Ampex believes that this is an indication that keepered media may
be able to address the disk drive market for both inductive and
magneto-resistive heads, it has not yet conducted sufficient performance and
other testing to ensure that this will in fact be possible in commercial
production. The agreement with Maxtor permits the use of keepered media with
both inductive or magneto-resistive heads.
It is not possible, at present, to forecast what effect a change in the
mix of drives using inductive versus magneto-resistive heads may have on the
market for keepered media. It is also possible that further analysis by the
Company, or by potential customers, will identify other technical or economic
issues of which Ampex, at present, is unaware. In a high technology industry
such as data storage, other technology may be under development, or may be
developed in the future, that could be technically or economically superior to
keepered media.
The Company does not presently have manufacturing facilities suitable
for producing keepered media in quantity, and the Company does not intend to
license merchant manufacturers of disk drive platters except to the extent
necessary to permit disk drive manufacturers, such as Maxtor, to acquire
keepered disks for incorporation in disk drives produced by such manufacturers.
Although the Company has held discussions with several U.S. and foreign
producers of disk drive platters, no commitments have been obtained by the
Company with respect to availability, price or other terms from such producers.
If the Company commences commercial production, capital requirements could be
significant and the Company would probably be required to issue debt or equity
securities, which would increase the Company's financial leverage or dilute
earnings.
The Company anticipates that further development of its keepered media
technology will require additional expenditures for capital equipment and an
increase in the current rate of its expenditures for research, development and
engineering, which have been relatively constant in recent years.
If the Company's keepered media technology becomes commercially
successful, that portion of the Company's business may be materially dependent
on the Company's patents covering the technology. However, there can be no
assurance that patents currently held by Ampex, or that may be issued pursuant
to pending and future patent applications filed by Ampex, will not be
challenged, or that patent protection, in itself, would ensure the commercial
success of this program or would provide adequate protection against similar or
other technologies independently developed by industry competitors.
While the Company believes that keepered media has the potential to
expand its business significantly, in view of the many uncertainties associated
with its development and commercialization (some of which are described above
and in the Company's prior filings with the Commission), it is impossible to
forecast when, or if, any benefit will be realized by the Company. Since the
prospects for keepered disk 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. See also "Market for Registrant's Common Equity and Related
Stockholder Matters." |
