Disk drive makers raise prices
By Mark Hachman
Electronic Buyers' News
(08/27/99, 03:13:18 PM EDT)
Two leading disk-drive makers have confirmed that they have raised the price of certain models, an indication that the drive market may be stretched to the breaking point.
A spokesman for Western Digital Corp., Irvine, Calif., said the company was raising prices on both its 4- and 8-Gbyte Caviar desktop drives, which he said represent the "sweet spot" of WD's sales. A spokeswoman at Maxtor Corp.'s headquarters in Milpitas, Calif., said the company was raising prices "selectively," more as a tool to help the pricing environment for the coming quarter.
Neither company would comment on the scope of the price increases, or say whether other disk-drive lines would be affected.
As analysts and competitors noted, however, even stable drive pricing is noteworthy these days. The price of disk drives is usually assumed to drop about 1% per week, but the decline has been even more pronounced since early this year, when drive makers began engaging in a win-at-any-cost market battle.
"We can't go much farther before we're driven out of business," said analyst Dennis Waid of Peripheral Research Corp., Santa Barbara, Calif.
Some observers said they expect other pure-play, publicly traded companies to follow WD's lead. In recent earnings statements, both Quantum Corp. and Maxtor reported losses within their respective disk-drive businesses, while Seagate Technology Inc. barely broke even, noted Jim Porter, an analyst with Disk/Trend Inc., Mountain View, Calif.
For now at least, competitors appear reluctant to match the WD and Maxtor price hikes. A representative at Seagate Technology said he was unaware of any planned price increases. In fact, the company, as with many of its rivals, was more eager to talk about reductions in manufacturing costs than specific pricing strategies. The Seagate spokesman claimed that his was the only company to date that has paid for price cuts through internal cost reductions. He said he was unaware of any changes in Seagate's pricing structure, although "pricing changes all the time."
Executives at Quantum could not be reached for comment. Nevertheless, one of the loudest voices in favor of a price increase has been Quantum chairman and chief executive Michael Brown, who told the Wall Street Journal recently that his company would not compete on price alone. Brown also informed Wall Street analysts and investors that he would try to raise drive prices.
This month, Quantum announced a restructuring plan designed to save the company an estimated $100 million, although the streamlining will result in a loss of up to 800 employees and $50 million in one-time charges.
Analysts remain unconvinced that Quantum's public resolve will carry over into private negotiations. Since about 75% of Quantum's business is sold directly to system OEMs on a negotiated basis without fixed contracts, "they can try and do it, but we'll see if it sticks," Peripheral Research's Waid said.
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