Maxell said Tuesday that it believes rising costs and shrinking margins will make a price increase “inevitable” on all magnetic tape products.
The company is evaluating when to hike prices, by how much and for which products, Don Patrican, executive vice president at Maxell, said in an interview. Maxell Corp. of America, based in Fairlawn, N.J., is a division of Japans Hitachi-Maxell Ltd.
Like the hard-disk-drive industry, the tape market has also been plagued by declining prices, even as development costs have held steady. Meanwhile, some companies have begun seeking alternative methods to archival storage, such as magneto-optical jukeboxes or other media that can be quickly backed up and recovered in case of an emergency.
Patrican said Maxell has been absorbing increased costs, including rising prices of the petrochemicals used in designing the base films that form the tape. But he said other fixed costs including resins, oxides and even insurance costs have played a role.
Hypothetically, he said, tape prices might be affected by oil prices alone, which topped $44.50 per barrel Tuesday, partially in response to Hurricane Ivans potential impact on the Gulf of Mexico oil rigs. Oil prices reached a record high of $49.40 a barrel Aug. 20.
“We consider ourselves a leadership company, and were willing to take the initiative to attempt to do this,” Patrican said. “A lot of detailed notifications have to be given” to customers, he said.
Patrican declined to specify how long the review process might take, or what products might end up being affected. “There will be a lot of studying this intently over the near future,” Patrican added. “Were serious about this.”
The as-yet-undisclosed price increases will affect all aspects of Maxells tape business, Patrican said, including computer media products such as SuperDLTtape and LTO Ultrium tape; professional-use tape; and consumer products such as VHS and camcorder tape. The price increases will not touch Maxells optical products, such as CD-ROM media, Patrican said.
In one analysts eyes, Maxells decision comes at exactly the wrong time, when enterprises are looking for an alternative to tape-based storage. Customers are looking to lower costs, not to absorb the added costs of a price hike, said Peter Gerr, an analyst at The Enterprise Storage Group in Milford, Mass.
“For many large enterprises, tape media costs are a significant capital expenditure,” Gerr said. “These companies manage tens of thousands of tape cartridges a year. That means that many organizations are looking at tape-replacement strategies for reliable lower-cost management, such as ATA[-based disk storage].”
In recent briefings Gerr has had with IBM, Quantum Corp. and Advanced Digital Information Corp. (ADIC), the subject of media price hikes hasnt been brought up, he said.
At press time, it was unclear what effect Maxells move would have on other suppliers. A representative for rival Imation Corp., based in Oakdale, Minn., declined to comment; and representatives at Sonys storage solutions business in New Jersey could not be reached by press time.
Representatives at Quantum Corp. also declined to comment, as did Certance LLC, formerly known as Seagates tape unit. Deborah Redmond, a spokeswoman for Certance, based in Costa Mesa, Calif., said Certance was one of the founders of the LTO (Linear Tape Open) tape technology and would not comment on the actions of Maxell, an LTO licensee.
On the other hand, analyst Bob Freeman of Ojai, Calif.-based Freeman Associates, said the tape market has been under pressure for months, and that Maxells move was overdue. “Theres a real rationale here,” Freeman said. “All vendors are suffering under the same price squeeze. Something has to happen; one of the major players is going to have to make a difficult move.”
Pricing for tape media has remained volatile, Freeman said. Prices for first-generation LTO media have crept below $30 to as low as $25 in the spot market, while LTO-2 pricing has slipped down to $60 or even $50—what Freeman called “fire-sale pricing.”
Maxell began tipping its move in June, when company executives publicly noted declining sales.
“In computer tapes operations, net sales and operating income decreased,” Hitachi-Maxell president and CEO Norio Akai wrote in the companys annual report, published in June.
“While demand for computer tapes grew steadily as customers handled increasingly high volumes of data, the shift in demand toward products with storage capacities above 100GB was slower than we had anticipated. Also, product price deterioration due to fierce competition in the market for products with storage capacities below 100GB exceeded expectations.”
Hitachi-Maxell places its tape operations in two business units: “Information Storage Media,” which includes its enterprise tape and optical disk products; and “Audio-Video Tape,” which includes consumer tape as well as its Mini-Disc products.
The information-storage unit remained flat, recording $1.02 billion in fiscal year 2003 and $1.02 billion in fiscal year 2004. The audio-video unit, however, continued to decline, shrinking from $388 million in fiscal year 2003 to $357.4 million in fiscal year 2004.