I was actually in the middle of doing a "Hal" when the real Hal resurfaced. For the umptenth time, too 8-)
Anyway, since I am on the soapbox, I might as well join Wayne and the others in taking a shot at the oft-repeated chorus of the skeptics and the angst-ridden, i.e, if KM is the next big thing in disk drives, then how come there are no other deals except the one with Maxtor, which happens to have a market share of only 5.8%?
First, KM is NOT the "...next big thing in disk drives." KM is an incremental advance in media technology whose commercial appeal lies in the 20-40% increase in platter capacity at an incremental manufacturing cost of pennies per platter, excluding royalties. KM is not as sophisticated or as technologically risky as proximity recording technology, for example. And that IS its selling point.
Second, the same skeptics are probably the same ones who were underwhelmed by the Maxtor deal because of the perceived lack of commitment by Maxtor and the lack of a dollar amount. But wait a minute. This is the disk drive industry we are talking about here. 2 out of every 3 disk drives are sold to OEMs who are working with tight margins so every pricing pressure exerted by the OEMs on the component suppliers like the disk drive makers necessarily ripples down to the component suppliers to the disk drive guys. As you go down this supply chain, the rule is that the bigger guys get to squeeze the smaller guys. In the disk drive industry, specifically, it is not all that unusual to find the drive makers double-ordering, cancelling purchase orders without penalties, qualifying each component for each product cycle, etc. In other words, everything in the Maxtor contract was par for the industry. And some are still underwhelmed?
To illustrate further, take a look at the SEC filings of CENSTOR. Censtor is a startup with some key proximity recording patents. It's business model was initially to license AND manufacture components of that technology. Licensing-wise, it was successful in closing deals with about 25 drive makers including Western Digital and Maxtor, which both received MOST FAVORED PRICING status on account of being the first to license. All the drive makers, of course, got the same contingency of NOT being penalized for not going through with a proximity recording program. Last year, Censtor finally gave up on its manufacturing option which it sold to ReadRite.
Now, before somebody starts drawing the apparent analogy between Ampex and Censtor, understand that proximity recording involves more complicated issues than KM so I don't think the analogy applies. The point is worth repeating, however, that practically all the objections heaped on the Maxtor deal have to do with standard practices and conventions of a commodity disk drive industry. The ReadRite and Censtor SEC filings are actually useful in the way it provides a 'crash course' in the way that the industry works.
We shouldn't be surprised then to find that the other contracts will eventually assume the same basic structure of the Maxtor deal except price, i.e.,no specific dollar amounts, price according to quantities ordered, no-penalty contingency, etc.
And as Wayne, Hugh, and the others have pointed out, there is nothing to stop the other drive makers from working on KM with just the present NDAs in place.
Incidentally, some of you may have noticed that Compag and HWP are beginning to rollout sub-$1,000 PCs. The premise is that the PC market is near the saturation point at 30% and further growth will only come when PC's come down in price within reach of larger segments of the market. This strategy has been tried before but this time the PC makers are using entry-level Pentiums and components, not lagging 486 chips and components. The disk drive of choice starts at around 1.0 GB - definitely KM material. What do you think this trend does to the margins of the disk drive makers? |
