A Disk Drive Company For Basic PCs
Conner Technology follows in the footsteps of the storage industry's leading lights
By Jim DeTar
San Jose, Calif.--When Peter Knight takes the podium at this week's Diskcon disk drive conference here, he plans to say a few words about Conner Technology, a company he has co-founded with fellow disk drive industry veteran Finis Conner. Conner Technology is chartered to inexpensively manufacture disk drives with capacities initially up to 4 gigabytes for the Basic PC and lower end of the mid-range PC markets.
"We are trying to do a low-cost design on the product, but that is not the key difference. The key is that it will cost us less to put it together. We have a new corporate structure," Mr. Knight asserted. "We think the model being followed currently is not one that can be sustained. Either they have to change or change will be forced on them in some way."
Mr. Knight, who is president of the new company, and Mr. Conner have worked together before at Conner Peripherals, once the number two independent disk drive maker in the world. Conner Peripherals was later swallowed by the number one company, Seagate, which recently went through upheavals of its own. Founder Al Shugart left the company when the board reportedly asked him to step down following a period of slower than usual growth.
Following Seagate's purchase of Conner, Mr. Knight was named senior VP of business development at Seagate where he worked from 1996 to 1997. Prior to that, from 1989 to 1996 he was VP and later senior VP at Conner Peripherals. And before Seagate and Conner Peripherals, he honed his management skills at IBM for 20 years.
Mr. Knight in a recent in-depth interview with Electronic News provided a comprehensive overview of what he says will be a new business model applied to the long-established disk drive industry. Essentially, they plan to use the successful fabless semiconductor model at Conner Technology.
Messrs. Knight and Conner formed the company, Mr. Knight said, because, ''In the industry over the last 18 months, the average unit price of low-end disk drives has gone from $180 to $130, and gross margins have gone from 15 to 17 percent down to single digits, with some companies still up at 10 or 11 percent. Expenses have gone from 8 to 10 percent to in the 11 to 17 percent region.
"Declining system prices, increasing expenses--and we feel the prices are not going to go up--what is necessary to do is to see how you make a profit in this industry. We founded the company with the objective of making a profit in the hard disk drive space and we think there will be a lot of growth."
The company is targeted at the low end of the mid range and the sub-$1,000 market, not for the segment that needs three- and four- disk systems.
"We often talk about low-end PCs as something you won't let your daughter marry. But in reality, a low-end PC is more powerful than most of the PCs in your company today. You can get it preloaded with Windows. They are more powerful than 95 percent of the PCs in use in the world. People have a need for a second computer, and it doesn't need to have all the bells and whistles, a camera and super video."
Conner Technology, while it has not officially been launched, is already well grounded. It has 45 employees including a design team in Colorado and a management staff at its San Jose, Calif. headquarters. "Although the headquarters is in San Jose, there are only five people there. The main reason it's there is that that is where I live," Mr. Knight said.
Executive staff includes: Jess Parker--who was with Archive--and is now head of operations at Conner; CFO Vince McCord, and head of engineering Art Geffon. "We have a fairly complete management setup at the moment," Mr. Knight said. He admitted that the company still has to name an executive to head its Far East manufacturing operations.
The fledgling disk drive company will have its drives manufactured in China, Mr. Knight said, in keeping with its strategy of addressing the low end market by manufacturing at the lowest possible cost.
The company is truly international with its HQ in Silicon Valley, design site in Colorado, manufacturing in China and its incorporation papers in Ireland. Although its HQ is San Jose, the company was incorporated in Ireland to provide it both with an entry point for the European market and, following the fabless storage company model they are pioneering, to keep costs down.
"Our corporate structure is set up to be the most tax and legal efficient as possible. The whole corporate structure is in Ireland and we will be trading in many physical areas. Today PC OEM consumer disk drives are in all parts of the world. We need to be capable of operating in all those jurisdictions. And it (Irish incorporation) keeps our expenses and legal costs down."
Conner Technology is privately held and will sell only to OEMs, with no distributors involved. Messrs. Knight and Conner are the founders and they are currently seeking private funding to grow the company. "We are working on a round of funding for the company," Mr. Knight said.
"Our objective is to make a profit in the desktop space. Others look at this as an absorption game. They have all diversified into tape, SCSI, mobile and other areas. The first thing that is different is that we are focused on the desktop. They have all gone to a high assets strategy--owning a large number of assets. Seagate has $1.7 billion in property plant and equipment. We think they have an out-of-date manufacturing strategy.
"For one thing, they are manufacturing in the wrong place. We intend to have manufacturing in the cheapest place there is, China, and we intend not to own our facilities. We are working closely with suppliers in the industry on design and to get from them higher level sustainable quantities of products."
When Conner Technology comes to market with its first disk drive in the first half of 1999, it will offer a multi-gigabyte device priced under $150. The target is to offer one- and two-disk products in 4- and 8-gigabyte aerial densities.
What does the future of the disk drive industry look like in Mr. Knight's eyes? "The PC market is bifurcating into two segments," he said. "In the first PC makers are adding bells and whistles. And on the other hand there are the $799, $699, $599 computers which, although low priced, are still a very good functioning product. The OEM volume market is outside the U.S. in the second and even the third world. $599 is still a high price but represents high functionality for what you can get.
"I don't think anyone thinks aerial density gains will slow down; in a few years storage capacity will be more than 16 gigabytes, more than enough to keep up with the storage needs of the industry." |
