First shortage story I have seen since fall of '96:
Dow Jones Newswires -- March 9, 1998
IBM Focuses On High-End Drive Mkt, But Shortages Emerging
By Joseph Rajendran
SINGAPORE (Dow Jones)--International Business Machines Corp.'s (IBM) strategy of making and selling disk drives for high-end PCs is paying off, but demand is so strong, shortages are developing worldwide, senior executives told Dow Jones Newswires.
Despite the sluggishness in the global disk drive industry, Fernando Casas, general manager for the company's Asia Pacific storage systems division, said IBM is finding it difficult to meet drive demand for notebook and server computers.
'We are beginning to see some shortages for the mobile computing market,' said Casas in an interview with Dow Jones Newswires. The recent exit of some players like Integral Peripherals and Western Digital Corp. (WDC), both U.S.-based companies, from the three-inch drive business is also cutting supply levels, he said.
The 'sweet spot' for the disk drives for notebook and mobile computers is currently in the two-gigabyte segment, although the market is likely to rapidly move to between four to six gigabytes, said Casas.
IBM's strategy of playing only in the top end of the disk drive market is a key reason why the company's hard disk drive business continues to thrive compared with other industry players, said David Wailing, manager of hard disk drives strategy and support based in San Jose.
Despite the downturn in the global disk drive business in 1997, IBM's shipments doubled in 1997 compared with a year earlier. The company currently makes all its disk drives at three plants, one in Singapore and two in Thailand.
IBM officials said two-thirds of the company's production are shipped to customers outside the group. 'We expect this to increase over time,' said Casas, who declined to give more details.
Wailing said IBM is 'one to two generations' ahead of its competition in this sector. An average drive has a product lifecycle of about six to nine months.
'There is no competitive response from the competition now...we have started shipping eight-gigabyte drives for the notebook computer market,' said Wailing.
The officials also said the company is a strong player in the server computer market, where IBM faces such rivals as Seagate Technology Inc. (SEG) and Western Digital Corp.
'We can't have enough drives to sell' in the market for server computers, said Casas. While some market players are selling high-end disk drives with capacities of less than 10 gigabytes, IBM has already started shipping products with capacities of about 18 gigabytes, said Wailing.
Although there have been concerns that some Asian companies were dumping disk drives in the region on the back of the on-going currency turmoil, IBM's disk drive products were left largely unscathed because they were aimed at the high-end of the market, said Wailing.
Turning to the desktop drive market, IBM officials said they haven't been hurt by the downturn because the company participates in only the high-end segment.
'We don't have a big piece of the desktop market. We sell high-performance drives and we're about nine to 12 months ahead of competition,' said Wailing. Although companies are selling drives with capacities of about four or five gigabytes, which is matched by IBM's 4.3 gigabyte product, the company prefers to sell drives with capacities of 6.4 and 8.4 gigabytes, said Wailing.
The segment of the disk drive market that is really hurting is the mass market desktop drives and IBM's total sales in this area is about 5% of hard disk drives sales, said Wailing.
'The desktop market is the lowest common denominator among companies. That is why the market segment is susceptible to pricing pressures,' said Casas.
'Today, companies are selling mainly the 4-5 gigabyte drives in Asia. When competition matches what we are selling, we move on to higher capacities (disk drives),' said Wailing.
This strategy has helped the company avoid price declines of 15-20% witnessed by the overall industry, compared to its 7% price fall.
IBM expects to push its 6.3-gigabyte to be the main desktop offering by the second quarter of 1998 and the 8.3-gigabyte drive to be be the key item in the second half of 1998, said Casas.
The push by leading desktop suppliers to sell PCs under U.S.$1,000 is the key reason for the downward spiral in disk drive prices, said IBM officials. Casas said there are underlying changes taking place in the disk drive market and this is expected to continue rather than be a one-time phenomenon.
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