In Silicon Valley, where innovation shines as brilliantly as the California sun, Xebec Corp. nonetheless has set a tempo that few technology firms can match.
Take, for example, Xebec's $20 million commitment to robotics and automated manufacturing in Nevada and Pennsylvania. That marks a distinct departure from the norm for this San Jose manufacturer of disk-drive controllers for personal computers. Most companies in the disk-drive industry have shifted the bulk of their production to the Far East.
Moreover, Xebec is the first American company to move into the manufacture of so-called "intelligent disk drives." These are Winchester disk drives with built-in controllers that electronically direct the drive's computer storage and retrieval functions. Jim Toreson, Xebec's president and chief executive officer, said the Owl intelligent disk drive will generate 25 percent of his company's sales in fiscal 1986.
Most observers of the disk-drive industry wish Toreson well, but they hedge in their assessment of Xebec's odds for success. Whether the company cuts it may have an important impact on the future of a key segment of American high technology.
"If Xebec's automated plants demonstrate that they are truly cost-effective, that would show the electronics industry that there is another way to be competitive without going to offshore production," said Jim Porter, the president of Disk/Trend Inc., a Los Altos, Calif., disk-drive market research firm. "But it's way too early to say whether the company's experiment in producing disk drives with robots will be successful."
In Toreson's view of the electronics world, however, there is no room for failure.
The Japanese already have captured much of the worldwide market for memory semiconductors and computer printers, and now dominance in disk drives and related components is up for grabs, he said. They also made major inroads in the floppy-diskette arena.
Disk drives represent an enormous investment in technology. "If we lose out to the Japanese in disk drives, too, they'll have the essence of everything that is technically important in a computer," Toreson said. "The die is pretty much cast for companies in our market: You have to shoot for high quality and high productivity, and that can only be achieved with automated factories.
"Clearly, there is a risk in what we're doing. But what is the risk of not doing it?"
Other Silicon Valley disk-drive companies increasingly have been developing their products in California and manufacturing them in the Far East, capitalizing on the much lower wages there.
Yet Toreson believes the trend is only temporary, especially with the escalating pace of change in disk-drive manufacturing. His view is that production first must be stabilized in America, then ramped up again overseas. "In effect, you're going through two manufacturing steps," Toreson said. "And if changes are needed later, they're difficult to implement on the production line in Singapore."
Toreson's gamble, for all its logic, could be undermined by a host of problems that have plagued Xebec recently.
In its fiscal year ended last September, sales totaled $158 million, a whopping 274 percent increase over fiscal 1983. But net income amounted only to $800,000, down from $3.8 million in the previous year. The story was much the same in the first fiscal quarter ended Dec. 31: Sales rose by 27 percent to $32.7 million, but net income plummeted to $800,000, down 97 percent from $3.1 million a year ago.
In March, meanwhile, Xebec terminated most of its work force at Epelo, a majority-owned subsidiary that is developing high-performance, high-capacity 5 1/4-inch Winchester disk drives. Toreson said product development fell behind schedule, necessitating the layoffs. He has scaled back his projection for the introduction of Epelo products from the fourth quarter of 1985 to the first half of 1986.
So far, Toreson said he isn't perturbed.
"Our building decisions may have been six months early, but they're still good," he said. Xebec has other problems, however, including accounting flaws that led to a major year-end earnings adjustment. That included a substantial reduction in net income for the quarter ended last March, from $3.4 million to $2.2 million. Securities analysts didn't take the news lightly.
"As far as I'm concerned, Xebec basically misled investors," said a San Francisco-based high-technology analyst who declined to be identified. "Throughout the year, they had beautiful earnings. Then suddenly they don't. Xebec's credibility has been severely dented."
Toreson acknowledged a lapse of accounting controls, but said that they were largely unavoidable in light of the company's rapid growth curve.
"You're obviously going to have problems when you grow almost 300 percent in a year," he said. "We caught a cold, not a terminal disease. Despite our growth, we met all our shipments on time, without exception."
He and others say that Xebec's bookkeeping problems are behind the company now that Christian Hoebich, a Xebec director and venture capitalist, has been hired as chief financial officer.
In any case, Xebec has had its share of success, and it's not limited to strict adherence to shipping timetables. With the help of a plant in Gardnerville, Nev., that relies on nearly 20 International Business Machines Corp. light assembly robots to produce printed circuit board assemblies, Toreson said company revenue exceeds $200,000 for each employe. By comparison, most American high-tech companies are in the $70,000 to $90,000 range.
Meanwhile, shipments of the Owl, which slowed sharply after production snafus last fall, finally appear to be on the rise. Toreson said the company is producing 3,000 a month and has orders for all it's making. Customers include CPT Corp., a Minneapolis manufacturer of office automation systems, and Philips N.V., a Dutch electronics conglomerate. Toreson said Hamilton Avnet, a major American distributor of electronics products, also recently began stocking the Owl.
Still, there always seems to be a cloud of some sort on Xebec's horizon.
IBM accounted for 60 percent of Xebec's revenue last year, mostly from the sale of disk-drive controllers for the IBM PC XT. IBM is expected to replace the XT with a new system this year, Disk/Trend's Porter said, and others said that Xebec didn't get the controller contact for the IBM PC AT, a more advanced personal computer for multiuser systems.
"Whether Xebec gets follow-on business with IBM is obviously a very big question," Porter said.