Storage Technology Corp., a former computer industry high-flyer that rode to success as one of the many companies making add-on equipment for use with large IBM computers, yesterday filed for reorganization under Chapter 11 of the U.S. bankruptcy code.
The Louisville, Colo.-based company said mounting losses made the bankruptcy filing necessary. It said it expected to lose $60 million in the third quarter, triple the loss it estimated just three weeks ago.
The losses put the company into violation of loan agreements with its banks, and it apparently was unable to negotiate modifications in the agreements, which it had been seeking to do for some time.
Analyst John Crotty, of the Gartner Group, in Stamford, Conn., said he was "very surprised" by the bankruptcy filing, but added that it might have been triggered by the collapse last week of negotiations for sale of the company's microtechnology unit to Plessey Co. PLC, a British firm, and by the actions of a West German bank that last week demanded payment on a $5 million outstanding loan to the company.
Storage Technology officials could not be reached for comment beyond a short statement released from the company's headquarters in a Denver suburb.
The company said it hoped to use the protection from creditor lawsuits afforded by the bankruptcy court through the chapter 11 filing to seek new financing to continue operating. "This protection will. . . allow Storage Technology to appropriately restructure its capital base, develop and implement operating strategies and consider possible divestitures, all in an orderly manner," the statement said.
"The reorganization filing best serves the long-term interests of the corporation's current and future customer base by assuring its ongoing ability to meet the corporation's customer needs," Chairman Jesse I. Aweida said in the statement. "The Chapter 11 filing is also intended to protect the interests of the corporation's other constituencies, including its employes, suppliers and creditors."
Founded in 1969, Storage Technology makes disk drives and other equipment used for storing computer data, primarily for the largest IBM systems. Its more sophisticated disk-drive products store massive amounts of data and sell for hundreds of thousands of dollars.
The company reached its largest success two years ago. After beating IBM to market with a new disk drive, Storage Technology's sales soared past $1 billion in 1982, and the company laid ambitious plans for expansion.
But quality control problems cropped up in the disk drive, and IBM struck back with a more sophisticated product. Customers defected from Storage Technology to IBM in droves, and the company lost more than $40 million last year. In addition, its answer to IBM's new disk drive was delayed by technical problems, giving IBM further opportunity to cement its hold on the market and reduce its price.
"Storage has had to discount quite heavily under IBM just to get a test product in there," Crotty said. Another competitor, Control Data Corp., recently bowed to the tough competition from IBM and got out of the large-scale disk-drive business.