Editing MiniScribe

{{short description|Defunct American data storage company}}
{{Infobox company
| name = MiniScribe Corporation
| logo = MiniScribe logo 1986.svg
| type = Private
| industry = Data storage
| founded = {{Start date and age|1980}} in [[Longmont, Colorado]]
| founder = [[Terry Johnson (entrepreneur)|Terry Johnson]]
| defunct = {{End date and age|1990}}
| fate = Acquired by [[Maxtor]]
| successor = Maxtor Colorado Corporation
| products = [[Hard disk drive]]s
| num_employees = 
| num_employees_year = <!-- Year of num_employees data (if known) -->
}}
'''MiniScribe Corporation''' was a manufacturer of [[disk storage]] products, founded in [[Longmont, Colorado]] in 1980. MiniScribe designed and sold [[stepper motor]]-based [[hard disk drive]]s with a large amount of onboard logic for the time. They eventually moved into higher-profile [[voice coil]] motor designs, and won major contracts with [[IBM]]. Massive financial fraud starting in 1987 led to bankruptcy in 1990, when their assets were bought by [[Maxtor]] and renamed '''Maxtor Colorado Corporation'''.

==Foundation, early slump, and recapitalization==
{{pic|File:MiniScribe logo.svg|Logo used from 1983 to 1986}} 
[[File:44 MB HDD and 2 GB CF card.jpeg|thumb|A 44&nbsp;MB, 5.25-inch full-height MiniScribe hard disk, shown with a more recent 2&nbsp;GB [[CompactFlash]] memory card for size comparison]]
The company was started by [[Terry Johnson (entrepreneur)|Terry Johnson]], who had a 20-year career in the hard drive business at such companies as IBM, [[Memorex]] and [[Storage Technology Corporation]]. MiniScribe became a major player when it won a series of contracts to supply IBM's PC division, and their subsequent rapid growth led to an [[initial public offering]] in late 1983, opening for trading in January 1984. However, slow sales of the [[IBM Personal Computer XT|IBM PC/XT]] led IBM to dramatically scale back their orders late that year, forcing MiniScribe to lay off 26% of its staff and causing the value of the stock to plummet. Johnson left the company; at the time he stated that he had been planning to do this for some time and that his departure had "absolutely nothing" to do with IBM.<ref name=quit>{{cite news |url=https://www.nytimes.com/1984/12/11/business/business-people-top-officer-quits-at-miniscribe-corp.html |title=Top Officer Quits At Miniscribe Corp. |newspaper=The New York Times |date=11 December 1984}}</ref> Johnson later said "It's a very low inertia industry, you can blow your way into it and get blown out of it very quickly".<ref name="fortune19851125">{{Cite magazine |last=Uttal |first=Bro |date=1985-11-25 |title=The Hard Times in Hard-disk Drives |url=https://money.cnn.com/magazines/fortune/fortune_archive/1985/11/25/66644/index.htm |magazine=Fortune |url-status=live |archive-url=https://web.archive.org/web/20160427230240/https://archive.fortune.com/magazines/fortune/fortune_archive/1985/11/25/66644/index.htm |archive-date=2016-04-27}}</ref> Roger Gower, who had been recently promoted to President, took over the CEO role as well.<ref name=quit/>

Shortly thereafter the company was recapitalized with a $20 million investment from [[Hambrecht & Quist]] (H&Q), a [[venture capital]] firm.<ref name=court/> One of H&Q's officers was Quentin Thomas ("QT") Wiles, a turnaround specialist nicknamed "Dr. Fix-It". Wiles took over the CEO position from Gower, running the company remotely from his office in [[Sherman Oaks, Los Angeles]],<ref name=IW-1989>{{cite news |url=https://books.google.com/books?id=wDAEAAAAMBAJ&pg=PT41 |title=Report Shows Miniscribe Inflated Financial Results |author=Parker, Rachel |date=September 25, 1989 |page=42 |newspaper=InfoWorld |access-date=18 July 2023}}</ref> with a management team made up primarily of accountants.<ref name=convicted>{{cite news |first=Patrice |last=Apodaca |url=https://www.latimes.com/archives/la-xpm-1994-08-09-fi-25289-story.html |title=Wiles Convicted of Fraud in MiniScribe Case |newspaper=Los Angeles Times |date=9 August 1994}}</ref> The company soon returned to profitability, with sales increasing from $114 million at the height of IBM's orders, to $603 million by 1988, when they were named the most well-managed company in the disk drive industry.<ref name="fraud"/> Their major customer at this time was [[Compaq]], but the company was also bidding for major contracts with [[Apple Computer]] and [[Digital Equipment Corporation]] (DEC).<ref name=cook/>

==Fraud and failure==
In January 1987, the company officers conducted a quick inventory to estimate their accounts prior to an independent review by third party accounting firm [[Coopers & Lybrand]]. Their internal inventory count showed that there was a shortfall of between $2 and $4 million. This implied the cost to produce those drives that did sell was higher than initially thought, which, if properly booked against sales, would mean their [[operating margin]]s would be unimpressive. Instead of reporting this, a number of the managers decided to cover it up by various means. They produced an inflated inventory count, and then broke into the accountants' lock boxes and replaced their independent count to match their newly inflated numbers. The team continued to roll these numbers forward through the quarters, compounding the problem.<ref name=court>{{cite court| litigants=United States v. Wiles| vol=102| reporter=F.3d| opinion=1043| court=10th Cir.| date=1996 |url=https://casetext.com/case/united-states-v-wiles-2}}</ref>

In July 1987, Jesse Parker, director of far east operations, told Wiles that something was amiss.  In August, Wiles travelled to Hong Kong and Singapore where he found a complete loss of control. The inventory count from that autumn showed that the numbers had grown to $15 million, mostly in Colorado. A report was prepared to consider various solutions, but Wiles suggested that they continue hiding the problem, ordering all copies of the report be destroyed. This led to the company's most infamous cover-up. The managers rented a second warehouse in Colorado, where they personally packed 26,000 bricks into hard drive boxes and shipped them to Singapore to bolster the inventory count.  After the count was complete, they recalled those serial numbers as defective units. Instead of writing them off, they checked them into inventory, along with other failed drives that had been returned.<ref name=court/>
[[File:MiniScribe-Model-8425-1.jpg|thumb|A MiniScribe Model 8425, manufactured on December 15, 1988, nearly a year before MiniScribe's bankruptcy and Maxtor's acquisition]]
The company continued to post impressive numbers, but there were troubling signs. Among them the company continued to post improving [[operating margin]]s while the rest of the hard drive industry was suffering from rapidly falling margins due to ongoing downward price pressure. In 1988 the [[board of directors]] became concerned when the company's reported [[Accounts receivable|receivables]] grew dramatically, indicating a large amount of unpaid billables, while at the same time inventories were also growing, indicating unsold product. Those two numbers are normally at odds. Increased receivables should indicate increased sales, which would normally result in decreased inventory. The directors began an internal investigation in October, while the company reported another record-setting quarter for that period in spite of failing to win either the Apple or DEC contracts.<ref name=cook>{{cite news |title=Cooking The Books: How Pressure To Raise Sales Led Miniscribe to Falsify Numbers |newspaper=Wall Street Journal |date=11 September 1989}}</ref>

The investigation revealed that Wiles set iron-clad sales forecasts and pushed these requirements down into the sales team, leaving no room for failure and setting bonuses on beating those figures. The sales team responded by "touching up" reporting documents as they moved up the reporting chain. Wiles responded to these positive reports by setting even higher sales targets, leading to ever-increasing fraud to meet them.<ref name="fraud"/> Wiles left the company in February 1989, followed by most of the company's officers over the next months. The directors report was released in the summer, stating that Wiles and his management team had "perpetrated a massive fraud" in a "company run amok".<ref name=IW-1989/><ref>{{cite web | title = Fraud Is Cited at Miniscribe | url = https://query.nytimes.com/gst/fullpage.html?res=950DE3DE1130F930A2575AC0A96F948260 | work = AP | publisher = [[New York Times]] | date = 1989-09-13 | accessdate = 2007-10-12 }}</ref>

Among the other techniques used to improve the numbers were classic accounting tricks. Failing to write off [[bad debt]]s, shipping drives to warehouses and booking them as sales ("[[channel stuffing]]"), back-dating shipments to allow them to be booked in earlier reporting periods to meet goals, and deliberately shipping defective products repeatedly to different customers so one drive could be booked as multiple sales (leading employees to joke that the only thing being repaired were the worn-out cardboard boxes). When the company embarked on a round of [[layoff]]s just before the 1989 Christmas shutdown, including several of the employees who were involved in the brick scheme, they immediately called the Denver area newspapers, who broke the story. Following immediate investigations in Singapore and Colorado the fraud was confirmed.<ref name="fraud">[https://web.archive.org/web/20170202002451/https://mnasran.files.wordpress.com/2015/05/fraud-examination-4th-edition.pdf "Fraud Examination"], Southwestern University, 2012</ref>

==Acquisition and aftermath==
The company declared [[bankruptcy]] on January 1, 1990,<ref name="fraud"/> and was quickly liquidated with [[Maxtor]] acquiring its assets in a $46 million cash and stock deal in 1990.<ref>{{cite news |url=https://www.nytimes.com/1990/07/03/business/company-news-maxtor-acquires-miniscribe-assets.html |title=Company News; Maxtor Acquires Miniscribe Assets |newspaper=The New York Times |date=2 July 1990}}</ref> Since then MiniScribe Corporation was known as Maxtor Colorado Corporation and later merged with its parent. In a subsequent court case, Wiles claimed to have known nothing of these schemes, saying he was duped by the middle management. Several of those middle managers testified that Wiles was aware of the fraud. The court also noted that Wiles sold a considerable number of shares in the company in April and May 1988, immediately prior to reporting a shortfall due to an "elaborate scheme" to manipulate inventory shortfalls. Wiles was convicted of [[fraud]] and [[insider trading]] in July 1994 following a federal jury trial,<ref name=convicted/> and sentenced to 36 months imprisonment. A portion of Wiles' conviction was overturned on appeal in 1996.<ref name=court />

Founder Terry Johnson later helped found [[CoData (company)|CoData]] with the intent of building a 3.5" hard drive with the capacity of standard 5.25" drives.<ref name="CoData">[http://archive.computerhistory.org/resources/text/Oral_History/Johnson_Terry/Johnson_Terry.oral_history.2006.102657961.pdf Oral History Of Terry Johnson, Computer History Museum]</ref> The company merged with [[Conner Peripherals]] in 1986<ref>Computer Systems News and Electronic News, Feb 1986</ref> and as Conner Peripherals became a major vendor for a time. Johnson died near [[Norman Wells]] in northern Canada while piloting his [[Beechcraft Bonanza]] on July 24, 2010.<ref>{{cite news |url=https://www.cbc.ca/news/canada/north/missing-pilot-found-dead-1.887330 |title=Missing pilot found dead |date=July 29, 2010 |work=CBC News |access-date=18 July 2023}}</ref>

==References==
{{reflist}}

==External links==
*{{webarchive|url=https://web.archive.org/web/19961110080201/http://www.maxtor.com/miniscrb.html|title=MiniScribe drive parameters listed on Maxtor's official website|date=November 10, 1996}}

{{Hard disk drive manufacturers}}

{{DEFAULTSORT:Miniscribe}}
[[Category:1980 establishments in Colorado]]
[[Category:1990 disestablishments in Colorado]]
[[Category:American companies established in 1980]]
[[Category:American companies disestablished in 1990]]
[[Category:Computer companies established in 1980]]
[[Category:Computer companies disestablished in 1990]]
[[Category:Computer storage companies]]
[[Category:Defunct computer companies of the United States]]
[[Category:Defunct computer hardware companies]]
[[Category:Defunct manufacturing companies based in Colorado]]
[[Category:Manufacturing companies established in 1980]]
[[Category:Manufacturing companies disestablished in 1990]]