The terrible consequences that can befall a company when a bunch of technologists are left in charge can be seen in the latest accounts of Calluna Plc, the Glenrothes, Scotland-based manufacturer of tiny disk drives. The company has come up with some exciting products, but the results are enough to make the most straight-laced finance […]
The terrible consequences that can befall a company when a bunch of technologists are left in charge can be seen in the latest accounts of Calluna Plc, the Glenrothes, Scotland-based manufacturer of tiny disk drives. The company has come up with some exciting products, but the results are enough to make the most straight-laced finance director want to throw a brick through the window of the R&D department. The market for their products is finally taking off and revenues have leapt from 2.2m pounds to 6.5m pounds. But ‘other operating charges’ – chiefly the cost of developing new products – climbed 75% to a staggering 12.8m pounds. Thus the company is left with a net loss of 6.1m – a 25% increase from last year. The problem with technologists is that not only do they tend to think high R&D spending an essential tribute to their genius, but they often have little appreciation that a huge sales and marketing operation is essential if products are to get to customers. Now, after a year in which some blood was spilled onto the boardroom carpet, a new management team is in place – and a fresh future is promised. In the jargon adopted to impress analysts, the company has moved from ‘ a technology development focus to a sales led operation’ – a euphemism for the fact that the R&D staff no longer call the tune. Despite its grim financial history, the company has a lot going for it. It makes really 1.8 inch drives – smaller than the 2.5 inch one used in laptops. It main competitor – Boulder, Colorado-based Integral Peripherals Inc – went belly-up earlier this year, leaving it with a clear field. So as the market for handheld devices expands and are joined by mobile phones evolving into portable information devices, and digital cameras start to reach a mass market, it should be able to make real progress. The company has the advantage that it is operating in a niche too small to be attractive to the big disk drive manufacturers. However, as the figures show, developing tiny devices is an expensive business and the R&D cost has to, for the moment, be spread over modest sales. The big hope rests with a 1GB drive now being tested with customers. Flash memory is potentially the big competitor but is too expensive currently to be a threat. However, all this is not the reason why – in advance of what everyone expected to be dreadful figures – Calluna shares have been snatched up in the past few weeks and there has been a buzz about a ‘killer product’ which was being evaluated by the Pentagon. All the excitement surrounds Hardwall R – a product which intelligently partitions hard drives and is claimed to make them immune from hacking. Managing director Ian King refuses to confirm the Pentagon story, but says: A number of military establishments with a high focus on security are looking at the product. Hardwall R is a card that fits between the hard drive and the computer and physically prevents those without the necessary authority from modifying partitions of the disk where they have no right of access. King describes it as an irresistible ‘show and sell’ product – though there have been pessimistic reports that some potential customers were not impressed. Apart from military establishments, the company sees a market with educational establishments and companies irked at the time that members of the IT department spend sorting out problems that users have inflicted on their own PCs. Calluna’s total revenues are currently running at 1m pounds a month and King is confident that they have enough cash to survive until they break through into profitability. The shares perked up 1.25 pence to 29.5 pence on the results – and someone at the Pentagon probably knows whether they are cheap at that price.