PHOENIX - By the end of 1997, 3M Co. will be out of the magnetic tape manufacturing business. The polyester tape, which represented about $650 million in sales for 3M last year, is used by replicators for audio and video recording. Industry watchers said 3M's decision should not have much impact on the audiotape market, but could affect videotape supplies.
``It's a matter of too many competitors chasing too little volume. You have 10 manufacturers all wanting a 20 percent market share and those numbers just don't compute,'' said Ray C. Richelsen, group vice president of audio and video products for 3M, in an interview at the Internation-al Tape Association meeting in Phoenix.
3M of St. Paul, Minn., had planned to exit the business entirely by the end of this year. But in an announcement last week to the Audio Video Duplicators Association, 3M said it will continue to produce bulk video duplication tape until sometime in 1997.
Bulk tape for video duplication is the market that should be hardest hit by 3M's pullout. The firm's decision to stay in that segment for longer than originally announced should give other producers of this magnetic media time to ramp up.
L.D. DeSimone, 3M's chairman and chief executive, said intense price competition in the audio/videotape business has hurt return on investments.
Also, the increasingly high cost of raw materials is contributing to 3M's decision to leave those markets.
``I doubt this is a good business for anyone,'' Richelsen said.
In fact, companies in the audio/videotape market have not made money in the last four to five years, said Michael Hartnagel, vice president and general manager for DuPont Films in Wilmington, Del. DuPont manufactures the polyester base film used to produce the magnetic media.
``All [of the major magnetic tape manufacturers] have lost money in that business, so somebody had to leave,'' Hartnagel said. ``There was just too much capacity and I think it was courageous of 3M to get out of the market.''
DeSimone said that he does not foresee any turnaround in the business any time soon, and Richelsen supported that outlook.
Richelsen said the company plans to continue producing polyester base film for use in other 3M applications such as packaging.
To help take up the slack, several magnetic tape producers are planning to add capacity this year.
Terence D. O'Kelly, director of sales and marketing of the Professional Products division of BASF Magnetics Corp. in Bedford, Mass., said 3M's departure from the bulk tape business will help their studio business, since there are only two players in that market.
``As far as digital tape, we're jumping into the area of video studio products faster than we planned,'' O'Kelly said.
Edwin Havens, general manager for SKC America Corp.'s Magnetic Media division in Mount Olive, N.J., said that company is adding capacity at its Suwon, Korea, plant.
``Right now, there's potentially no shortage,'' Havens said. ``We're increasing coating speeds and adding film lines to make up for any potential deficit in magnetic media.''
Havens added that the magnetic tape industry did not have a good year in 1995, and sales continue to be flat.
The videotape market, he explained, is driven by Holly-wood. With no blockbuster movie, sales have slowed.
Several replicators, including Geoff Thurstan, sales and marketing manager for Southern Star Duplitek in Alexandria, Australia, have indicated concern over reduced supplies of magnetic tape.
``We use 3M's magnetic tape exclusively and haven't found a new supplier as yet,'' Thurstan said.
3M's departure also disappoints others in the industry who have come to depend on the tape's consistency and reliability. Dee Robb, co-owner of Cherokee Recording Co. in Los Angeles, said he was horrified upon learning that the tape would soon be unavailable. He is searching for another supplier.
Hartnagel said that with 3M's exit, market supply and demand should come more into balance, allowing prices that reflect the value of the videocassette to the consumer.
Currently, added Hartnagel, prices are low because tape manufacturers ``are killing each other, rather than the consumer driving down prices.''
This, he said, results in an unhealthy industry.
``My hope is this will give the industry a chance to improve itself.''
In the same announcement, 3M said it also plans to spin off its data storage and imaging systems business into an independent, publicly owned entity.
In 1994, product sales in these businesses totaled more than $2 billion.
3M will consist of two business sectors: Industrial and Consumer, and Life Sciences. The Electro and Communications Markets Group, currently part of the company's Information, Imaging and Electronic Sector, will join the Industrial and Consumer Sector. Together, these businesses had sales of more than $12 billion last year.
3M's data storage business is the worldwide leader in removable media used to store and transmit computer information. Products include data cartridges, diskettes and optical discs. Among its new, leading-edge products are Travan-brand data cartridges, which set new standards for performance and storage capacity.
Richelsen said that since 3M is taking nearly a year to discontinue the magnetic tape manufacturing division, the company can absorb employees into other 3M divisions.
About 800 people worked in the audio/videotape business, 400 of those workers already have found jobs at other 3M locations.