SiliconBeat

Quantum, the San Jose supplier of computer storage products that a decade ago ranked among the ten biggest companies in Silicon Valley, filed its 2008 proxy Friday containing a proposal asking shareholders to approve a reverse stock split. Not a moment too soon, apparently, as its shares hit what looks to be an all-time low of $1.33 on Friday.

Stock splits usually give stockholders multiple new shares in exchange for each old share, with a corresponding price cut in the new shares. In a two-for-one split, for example, shareholders get two new shares for every one they hold, with the price of the new shares being half the price of the old share, thereby keeping total market value the same.

Why do it? Conventional wisdom has it that that investors can be put off by a stock price that is too high. To buy 100 shares of Yahoo, which has split its stock four times since its initial public offering in 1996, you would have spent roughly $2,200, while 100 shares of Google, which has never split its stock and says it never will, would have cost your more than $50,000.

Quantum’s stock price has a different problem: it’s too low. Its board is seeking to enact a reverse split that would take as few as four or as many as twelve current shares and replace them with one, and in so doing raise its stock price by a corresponding amount.

The board cites two reasons for the repricing: to ensure its stock stays above the minimum share price of $1 required of companies listed on the New York Stock Exchange; and the potential increase in interest among investors who might be put off of buying shares of a company whose stock price is $1 or less.

One of the largest local companies to reverse-split its shares recently is Sun Microsystems, which last fall gave its investors one new share in return for every four old shares they owned, at a time when Sun’s stock was trading around $5 a share. The move lifted Quantum’s stock price to a better-sounding neighborhood located in the $20s.

Since then, Sun’s shares have lost nearly half their value, closing Friday at $10.96, which would have been equal to $2.74 for each pre-split share.