*** OT *** fyi dd industry ,
Fujitsu Hums Merrily Along While Drive Rivals Stumble
Date: 3/4/98
Author: Michael Lyster ( IBD )
Spiraling prices and new competition have turned the computer disk drive industry on its ear. Fujitsu Ltd. wants to shake it up even more.
The Tokyo giant's Fujitsu Computer Products of America unit gained the most market share in the drive industry last year. The San Jose, Calif.-based unit is stepping up the onslaught this year, even as the drive market reels from a glut of products.
''Our goal is to be one of the top three manufacturers,'' said Larry Sanders, Fujitsu Computer Products' president and chief executive. ''We are bringing more capacity on line.''
Fujitsu, which shipped 11 million drives in '97, is upping production of drives used in personal computers this year. Fujitsu estimates its drive sales will reach $2.2 billion in '98, more than double last year's revenue.
Later this month, a factory expansion in the Philippines is set to add another 500,000 desktop PC drives to Fujitsu's monthly output. Desktop PC drives in '97 were 80% of the company's shipments.
The company also makes drives for laptop computers, which comprised another 10% of last year's shipments. But Sanders is keeping a close eye on drives for high-end business computers, which offer meatier profits. These so- called ''enterprise'' drives were 10% of Fujitsu's shipments in '97.
''We have substantial growth goals,'' Sanders said.
Fujitsu was the fifth-largest drive maker in the fourth quarter of '97, according to Framingham, Mass., market researcher International Data Corp. While other drive makers stumbled last year, Fujitsu saw its market share go from 5% in '96 to 9% in '97. The company also moved up from sixth place to fifth in market share for '96.
''They want market share,'' said IDC analyst Alexa McCloughan. ''They are out there aggressively competing.''
Fujitsu's drive business has ample backing. Its parent counts annual sales of about $40 billion.
That support has helped Fujitsu hold its own in a turbulent market. Oversupply and price drops have caused losses, layoffs and falling sales at the top three drive makers. Demand for PCs priced less than $1,000 has squeezed already tight drive margins.
One competitor, Charles Haggerty, chief executive of Irvine, Calif.-based Western Digital Corp., says his company's recent poor performance was due in part to ''extremely aggressive pricing, principally by Japanese and Korean competitors,'' including Fujitsu.
But Sanders says Fujitsu is not selling drives below cost just to gain market share.
''Western Digital was trying to accuse us of price dumping,'' he said. ''It's simply not true. That's been proven over time.''
Analysts agree. They say Fujitsu simply capitalized on the industry's woes.
''It wasn't any one company,'' said David Takata of Gruntal & Co. ''The whole industry overbuilt.''
Fujitsu's gains stem from a restructuring of its drive business, analysts say. In the early '90s, the company set up plants in Thailand and the Philippines, where costs are lower. Sanders, a drive industry veteran, came on board in '95.
Analysts see Fujitsu's growth continuing this year. The company in October rolled out 12 new drives - five for servers and workstations, five for PCs and two for portable computers.
But Fujitsu is not without its troubles. In early February, Fujitsu cut its companywide sales and profit forecast for its fiscal year ending March 31.
The company said weak semiconductor prices, currency turmoil and restructuring would cut net profit 12% from an earlier estimate to $80 million. A revenue projection was revised downward by 4% to $41 billion.
Sanders says currency devaluations in Thailand and the Philippines have reduced his unit's operating costs.
''We have been part of the solution, not part of the problem, to Fujitsu's profitability,'' he said.
Still, Fujitsu's run at a spot among the top three drive makers isn't a given, analysts say. While industry leaders are in disarray, they have pulled through downturns before.
Scotts Valley, Calif.-based Seagate Technology Inc. and Milpitas, Calif.-based Quantum Corp. both are pegged for comebacks. Analysts also point out that IBM Corp. recently started shipping drives with a new component that allows for more PC storage capacity.
''Fujitsu has a ways to go,'' IDC's McCloughan said. ''The top three suppliers all have 20% kinds of market share. To narrow that gap in the next 12 months would take some serious missteps on the part of the top three.''
Fujitsu also has to watch its back. A resurgent Maxtor Corp. - a San Jose, Calif.-based unit of South Korea's Hyundai Electronics Industries Co. - posted its first profitable quarter in five years last month. It slipped one place in the rankings, from fifth to sixth, but was the second-biggest market-share gainer last year, after Fujitsu.
Sanders says he isn't underestimating the competition. But he says he's confident that Fujitsu will prevail when the dust settles in the drive industry.
''If we talk about who will be left standing when it's all over, that company's got to be big, global and vertically integrated,'' Sanders said. ''We are vertically integrated.'' |
