Tom, re > interesting article on IBM's disk drive and heads business in today's IBD <
Wouldn't you know, today I didn't get delivery of my IBD - again.
It happens about once a month and I complain every time. This
time, I'm getting revenge by posting the article here...<G>
IBM's Storage Businesses Rewrite The History
Book
Date: 5/4/98
Author: Norm Alster
History doesn't always repeat. Sometimes it actually reverses itself.
Such is the case with IBM Corp.'s storage business, which is bucking historic
patterns of performance at Big Blue these days. In computer systems, IBM
clung too long to its high-end focus. At the low end, in personal computers, it
has struggled for years.
But in storage - the magnetic systems that record and hold computer data -
the reverse is true. IBM has long since lost its market stranglehold over the
large subsystems that hold mainframe data. But it has come on strong building
disk drives for PCs.
''They really are doing well - so well that they could get out of the business of
developing subsystems and just sell components,'' said John Webster, analyst
with Yankee Group in Boston.
Consider the contrast. In storage subsystems for mainframes, IBM's market
share has slipped from 36.6% in '94 to less than 30% last year, Framingham,
Mass.-based International Data Corp. reports.
But during the same period, it has increased its share of high-performance PC
disk drives from 24.5% to 33%. IBM sold about $2.7 billion in disk drives last
year to external customers. Salomon Smith Barney analyst John B. Jones
expects IBM to grow disk drive sales by 35% or better this year.
IBM's success derives from a mix of technical leadership, focused marketing
and manufacturing might. It also has benefited from vertical integration. Since
it makes the platters, heads and electronics that comprise disk drives, IBM has
been able to optimize the meshing of those elements to get to market first with
advanced products.
Along the way, IBM also is avoiding the troubles the top hard drive makers
now are facing in overcapacity and plunging prices. Market leaders such as
Seagate Technology Inc., Quantum Corp. and Western Digital Corp. have
seen their financials deteriorate as PC makers exert pressure for price cuts.
But IBM has managed to avoid the worst of it. Big Blue has focused on two of
the safer havens in storage: disk drives for mobile computers and for PC
servers.
The mere fact that IBM does not make drives for $1,000 desktop computers
also helps, analysts say. With $1000 PC makers turning the screws on their
parts suppliers, drive makers have had to slash prices to retain business.
''Since we don't participate (at the low end), we're not under the same
pressure they are,'' said David Walling, manager of hard disk drive strategy
and support at IBM's Storage Systems Division.
IBM is not entirely immune, though. Analysts believe that IBM's shipments
were down a tad in the first quarter, compared with the same period in '97.
The problem is in the portable sector, where IBM holds a 41% market share
of the disk drive market, IDC says. Walling believes that portable sales have
slowed because prices have not come down as fast as those of desktop PCs.
In the midst of a major capacity expansion, IBM is partly responsible for the
current travails of the disk drive industry. Once its new plant in Thailand is
running at full capacity, IBM will have added 50% production capability from
what it was in late '96. But Walling is confident that all that new space can be
put to use.
The reason is IBM's new giant magnetoresistive, or GMR, head technology,
which is used to read and write data stored within disks. With its new
technology, IBM claims it will be able to build disks packing 11 billion bits per
square inch. That's up from current highs of 4 billion bits per square inch.
This new technology should allow IBM to expand in two directions. First, it
will sell the sensitive new heads on the open market. Acting CFO Larry
Ricciardi recently told analysts that IBM's first-quarter shipments of heads
matched those for all of '97.
And IBM hopes its new high-capacity drives will give it an edge at the high
end of the desktop market, a sector where it is now just -pardon the term -a
bit player.
But wouldn't IBM then be exposed to the same dynamic of shrinking prices
that has plagued other makers of desktop PC drives?
Not really, says Walling. The high end of the market will increasingly demand
superior performance. And new drives built with GMR technology will
establish clear performance superiority for high- end PCs.
In the past, both low-end and high-end PC desktop buyers might be offered
three- or four-gigabyte drives. GMR will allow IBM to offer 14- and
16-gigabyte PC drives - which, among other things, will be useful for
disk-hungry video applications.
''We think there's a tremendous opportunity for market penetration and
expansion in selling to the high-performance desktop buyer,'' said Walling.
Meanwhile, IBM continues to bleed market share to EMC Corp. in mainframe
storage. IBM's recent history in large systems storage has been riddled with
''delays and problems,'' said IDC analyst Dave Vellante.
Largely as a result of IBM's failures, EMC has come out of nowhere. Analysts
expect it to take in roughly $4 billion in revenue this year. Since IBM once
owned the mainframe storage market, that's $4 billion out of Big Blue's back
pocket.
But here's an interesting irony. IBM recently began selling disk drives to EMC.
There's a moral to this story: If you can't beat 'em, supply 'em.
(C) Copyright 1998 Investors Business Daily, Inc.
Metadata: IBM SEG QNTM WDC EMC I/3573 I/3578 E/IBD E/SN1 E/TECH |
