History (1992): Exclusive Interview With Peter Behrendt, President, COB and CEO of Exabyte

The champion of the 8mm buying a 4mm company, that’s a surprise. We remember that a firm couldn’t be a distributor of Exabyte, if it was selling 4mm. Why this complete change?
We find that many of our customers want to sell tape drives into different market segments, the market segment where Exabyte has always been strong, high-capacity, high-data rate, and mid-size form factor, and those customers are continuing to buy 8mm product, but they also want to sell into the smaller-form factor, lower-capacity, lower-data rate market place, and we see no reason that we should not be able to participate in the growth of those other marketplaces as well. And to deal with multiple technologies, you really need a certain amount of resource, you cannot do that as a small company and do it right, so we had to reach a certain size in terms of engineering and in terms of management, manufacturing, in terms of money, before we felt comfortable that we could continue to move forward with 8mm technology and, at the same time, do a good job with some other technology. And we decided, this year, that we had reached that size, and therefore, we decided that we were interested in offering a second technology and it would not be totally surprising if, in a few years, we might add different technologies as well.

But was is just an opportunity or did you think about QIC or other technologies?
The DAT technology was of interest because of several reasons. Number one, it is very similar to 8m in the sense that they are both helical scan, so it’s a technology we really understand. Secondly, it’s today the strongest technology in the market place just below ours, and I think it’s more sensible, from a company point of view, to have strength in adjacent marketplaces than anticipate in market places that are far apart.

You paid $14 million for a company, R-Byte, that has sold less than 1,000 drives.
Well, if they had sold 100,000 drives we would have had to pay $140 million. You mainly bought more an engineering team. We have bought an engineering team, that’s true, but we also bought a product that has been under development for 4 years and we bought a product that we think is ready to ship to market with a lot of technology base already in existence for what ever comes next. What we bought is not just a team but the beginnings of a manufacturing facility and the product and the technology.

Will you keep the name R-Byte?
No. We did not buy IBM or Sony.

Will it be a subsidiary?
The way we plan to do it, is we intend to keep the 4mm engineering team in San Jose, CA and have a relatively small manufacturing capability there. Most of our competitors in the 4mm field do not have that. They have their development perhaps in the US and their manufacturing in Japan. Sony being the exception that comes to mind. Volume manufacturing we will do here in Boulder.

You didn’t answer if R-Byte will be a subsidiary or not.
There are two answers to that. Legally, in terms of formal documents, yes. In practical terms, no. We will have an engineering and manufacturing team in San Jose. However the existing Exabyte sales team will sell 4mm as well as 8mm. The existing administrative function that processes orders will be in Boulder, CO. The product marketing will be done primarily from Boulder with maybe one or two people in San Jose. You can think of it as a West coast site. But it’s not a stand-alone subsidiary with its own sales.

And who will be in charge of this new activity?
Ian Turner was president of R-Byte and he will be GM of that facility and will report to Frank La Hue who reports to me, he is our SVP of operations.

What’s your objective in terms of production?
I think that the San Jose facility will probably be kept in the 1,000 to 2,000 drives a month range. Not grow beyond that. And in Boulder, we plan to build as many tape drives as customers will buy.

Are you sure that you are not arriving too late?
R-Byte is one of the last ones in the market. We think that if you look at the forecast of various industry experts for the digital audio tape business, in 1992, in very rough numbers, the assumption is around 150,000 4mm drives will be sold by 6 or 7 companies and, in 1995 or 1996, it’s almost one million 4mm drives. That market is just beginning to grow and I don’t think it’s too late to get a significant market share in a business that’s really in its early stages, if those forecasts are right. Especially if you have a product that has certain advantages over the competition and especially if it’s brought to market by a company that has a strong image in that marketplace. If your question to me had been: “Do you think that R-Byte by itself could come to market now with that product and not be too late?”, I would give you a different answer. But Exabyte is in a different position, we have distribution channels, we have money, management, reputation, customers, engineering, manufacturing, it’s a very different situation.

Are R-Byte’s engineers able to conceive a new 8mm mechanism?
I suspect they are. It’s the same technology basically. However, we have a very strong 6-year old partnership with Sony who has thousands of engineers that work on future 8mm mechanisms and a very good relationship with Exabyte.

It seems that there is a contradiction. On one side, for 8mm, it’s advantageous to work with Sony, and on the other hand, for 4mm, it’s better to have your own mechanism.
I think it would be advantageous if Exabyte had its own 8mm product for all the same reasons. But there are also differences, there isn’t anybody who builds 4mm mechanisms in the same quantity that Sony builds 8mm. That is a very strong advantage from a cost and reliability and automation point of view. There is nobody who is pushing 4mm audio technology in the same way that Sony is pushing 8mm video technology. So there is less motivation for Exabyte to do its own 8mm mechanism then for someone to do their own 4mm mechanism.

Three people from the top management left your company recently, who are they and why did they leave?
Recently is a relative term. Juan Rodriguez left as a full-time employee two and a half years ago, and then left as chairman 10 months ago. He is still a member of our board of directors, he left to teach at the University of Colorado. The 2 other ones, Jim Greenup and Kelly Beavers, left 3 months ago, they left because they are enterprising in nature, and they wanted to start a new venture that’s not competitive with Exabyte and we respect that. I think you’re maybe asking the wrong question. The question that is really interesting is not why did 3 people leave but why did so many executives stay for as long as they did. I would challenge you to find another company that you follow in our industry where the 5 corporate officers stayed together, as a team, without any change for 5 years. Name one.

For which reasons did some shareholders lawsuit your company recently?
It’s an unfortunate fact in this country. There is an industry in this country made up of a small number of lawyers that will automatically sue any company that has money. There are literally thousands of those lawsuits filed every year, high-tech companies are a particular popular target because their stock tends to be very volatile. I would claim that these are not shareholder lawsuits, these are lawyer lawsuits. And they do it for one simple reason: to make a lot of legal fees in the process. There are some companies such as Seagate that have been sued 4 or 5 times, always by the same lawyers. Seagate has been sued 4 times when their stock went down and once when their stock went up. It’s an industry, it’s a business. There. is some legislation pending in Congress right now trying to stop this abuse of the legal process. In this country, greed is an adequate reason to sue.

Is there any specific reason?
You can make up any reason you want to. 98% of these suits never go to trial. It’s cheaper to settle these suits than to fight them for 5 years.

For your last quarter, ended October 3, 1992, you reported a loss for the first time in the history of the company? What is happening to the success story?
It actually is a sign of success, because the lost has not come from the normal operations of the company. Every month of this quarter we were profitable and we were profitable for the entire quarter from the normal operation of Exabyte. The loss comes from the fact that, because of our growth and our success, we were able to afford buying R-Byte for approximately $14 million and accounting rules in this country forced us to subtract the entire or almost the entire $14 million from our profit in this quarter. And since our profit was less then $14 million, the net results look like a loss, but you really have to look at it as a one time extraordinary expense. We told the financial community that we were intending to acquire R-Byte and, if we did, we would have to write off that entire cost.

Revenue increased only by 9%, it’s not an habitual percetageage for Exabyte. How do you explain that? In the disk drive industry, revenues are growing much more than that.
The disk drive industry is growing because there are major price wars in the PC market place and when they are major price wars among Dell, IBM and Compaq and everybody else, as the price of the total system goes down people buy more PCs. And therefore disk companies sell more disks. If you look at the total industry there is a WW slowdown in the economy. I believe StorageTek just announced disappointing results, I believe you will see a number of other companies, IBM has announced disappointing results. I think that, in general, this is not a particular good quarter for most companies.

Why is it so difficult to launch a 3.5-inch 8mm drive?
I think it’s a matter of geometry. The 8mm cartridge is quite large, relative to the size of the hole. So if you want to use that same cartridge, and you want to come up with a mechanism that fits inside that 3.5-inch form factor, there is virtually no space left on either side of the cartridge and very little anywhere else. So you have 3 challenges. One is you have to have a mechanism that fits in that space. That’s a solvable problem. Number two, it leaves very little room for the electronics, and just because it is in the 3.5-inch form factor, it doesn’t mean you don’t need any less function, less buffer memory, less ICs, so you have to go to a extraordinarily high degree of integration on the electronics, and you concentrate a lot of electronics in a very small space that has heat dissipation implications. Thirdly, there is the perception that probably comes from the disk world, that if you make something smaller it will automatically be cheaper and I don’t believe that’s necessarily true in something like this.

This article is an abstract of news published on the former paper version of Computer Data Storage Newsletter on issue ≠58, published on November 1992.

Note: Peter Behrendt passed away on April 26, 2017 at the age of 78. He was born in Berlin, Germany, on November 27, 1938, to Gerda Keller Behrendt and Martin Behrendt.