Disk drives headed up
Framingham, MA — IN WHAT foretells good news for the international contamination-control community, the hard disk drive industry appears to be taking a turn toward the better.
Following the market`s general decline throughout 1997 and into the first half of 1998, the first signs of recovery appeared in the third quarter and snowballed to close out the year. “The final quarter exceeded our expectations by over 2 million units,” says Alexa McCloughan, senior vice president, International Data Corp. (Framingham, MA).
Upturn to continue
Driven by strong PC demand in the U.S. and Europe, stabilizing desktop prices, and low existing inventory levels, McCloughan expects the upturn to continue for the first quarter of this year.
For the contamination control industry, the first reflections of an upturn in the hard drive market are now showing up in disposables sales. According to Bob McIlvaine, president of market research concern, McIlvaine Company (Northbrook, IL), “The disposables area is already clearly picking up.”
Seagate Technology (Scotts Valley, CA), for example, reported a net income of $104 million for the quarter ended January 1, 1999, as compared to the same quarter a year ago when the company had a net loss of $183 million (including restructuring and special charges). According to Seagate`s President and Chief Executive Officer, Stephen Luczo, “in addition to improvements in other business areas, the turnaround included strong revenue growth in the disk drive segment.”
Seagate appears to have acted sooner than several other drive makers to deal with the interim downturn. Just about a year ago, the company undertook a “global realignment” stategy which included closing its Clonmel, Ireland, manufacturing plant, and consolidating its five U.S. disk drive product design centers into three. The Clonmel facility had been in operation for only two years. The actions seem to have paid off, however, at least for shareholders. Luczo says, “we believe this [last quarter] performance is directly related to the actions we took over the last year to increase our productivity and improve the competitiveness of our products.”
Reducing product complexity
Quantum (Milpitas, CA) also saw improvement in its hard drive business. In September of last year, the company announced plans to adapt its operating model to changes in the personal computer market. Observing that “during the past three quarters, we`ve seen a significant expansion in the market for low-cost PCs,” Young Sohn, president of Quantum`s Enterprise and Personal Storage Group, says changes would include reducing product complexity through fewer combinations of head/media and motor sources and the direct shipment of product to some customer sites from its manufacturing partner Matsushita-Kotobuki Electronics, Ltd. (MKE). MKE has hard drive manufacturing plants in Japan, Ireland, and Singapore.
Although for its third fiscal quarter (ended December 27, 1998), Quantum had a net loss of $106.6 million, this figure included special charges of $190 million, including $101 million to dissolve the company`s recording heads joint venture. Without the special charges, net income would have been $50.8 million. In particular, revenues from the company`s desktop hard drive business grew 11 percent sequentially and the company shipped 6.5 million desktop units in the quarter, a 12 percent increase from the previous quarter.
Not everyone is out of the woods yet, however. For example, although unit shipments for the company`s second quarter (ending December 26, 1998) reached 5.4 million, compared with 4.6 million units in the September 1998 quarter, Western Digital (Irvine, CA) reported a net loss of $82.3 million for the period. And, for the six months ended December 26, 1998, the net loss was $276.9 million.
As a result, Western Digital is now moving to streamline its operations as well, including closing one of its three Hhard drive manufacturing plants. The company is combining its personal storage division and enterprise storage group into a drive products division, with the production of WD Enterprise drives being transferred from its Tuas, Singapore, site to the Company`s nearby facility in Chai-Chee, Singapore. The Tuas facility will be closed.
According to McCloughan of IDC, while new construction may not be in the cards anytime soon, retrofit and refurbishing are expected. “Fujitsu is absolutely expanding and retrofitting, and we have to assume that Seagate is in a heavy-retrofit mode as well as part of the company`s facility rationalization plan.” Likewise, McCloughan points out that with Western Digital`s closure of its Tuas site, the company will have a concurrent requirement to retrofit its Chai-Chee facility.
John Haystead, is a freelance writer in Surry, ME, and was formerly the editor of CleanRooms.