Drive maker exits enterprise

Western Digital leaves enterprise hard drive business due to declining market share, increased competition

By Owen Ferguson

In a move that took nearly everyone by surprise Western Digital has announced that it will cut 400 jobs and move out of the high-end hard drive market.

The number three computer disk drive maker, which is based in Irvine, Calif., claims to be planning to focus on personal computers, as opposed to enterprise solutions.

To that end, most of the 420 workers in its Rochester, Minn.-based design center, which was opened in December 1994, are expected to lose their jobs.

Like its competitors IBM and Seagate, Western Digital was hit last year with falling prices in the disk drive industry, price shifts that forced Seagate and others to also cut employees and costs.

"We are exiting the enterprise hard drive business because our share has been declining in a market that is getting increasingly competitive," Matt Massengill, president and chief executive, says in a statement. Nonetheless, in the fiscal year ended July 3, 1999, the high-end drives used in high-speed servers and computer workstations accounted for about 11 per cent of Western Digital's US$2.8 billion in revenue.

It seems that just about every company now has an Internet plan, and this move seems indicitave of Western Digital's desire to become one of the gang. A release by the company says that it plans to concentrate on making special devices to meet a growing corporate need for storing data as they bring their businesses toward an Internet model.

Western Digital also announced that its operating loss for the second fiscal quarter, which ended December 31, was significantly lower than the Wall Street analysts' estimates of approximately US$100 million, before previously-announced special charges. It attributed the better operating performance to improved pricing and demand with respect to the desktop hard drive market, and also a successful recall of faulty hard drives that began in September 1999.

Robert Katzive, an analyst with Disk/Trend Inc., of Mountain View, Calif., says that the recall was important in maintaining system builders' views of Western Digital as a reasonable hard drive manufacturer, although it did engender some ill will. "I think they did the responsible thing, but if you happen to be in the computer manufacturing business, it's a bit of a pain because it puts, in some cases, a strain on your service operations, which costs money, of course," he says. "I think they caught the problem before it started to cause a significant number of problems in the field," he adds, which is something that many builders consider laudable.

But after suffering a setback as major as a 400,000 drive recall, why would Western Digital stop production on a line that accounts for 11 per cent of its revenue? Massengill explains that Western Digital's market share in the enterprise world has been shrinking of late, and that "two major enterprise-class OEM customers" recently indicated they are reducing their number of enterprise hard disk drive suppliers. He also describes his company as having a "lack of execution in the enterprise business over the last year."

"These trends," he says, "made it clear that this was the right decision now for Western Digital."

The company is planning to continue full support for all its enterprise-class drives throughout the length of their life cycles, and that it will still sell off its remaining drives over the course of the next year.

This, Massengill says, will allow the company to focus on strategies for Internet-related storage devices for the enterprise.

"The greater promise for Western Digital, in the enterprise market, is to claim more of the opportunity created by the Internet in emerging high-growth markets without established players, in managing the content, flow and security of the growing amounts of stored data," he says. "We have the talent, intellectual property, heritage of innovation, and the vision to assert a much broader role for Western Digital in storage on the Internet."

The company's first such foray into the online world will be through a wholly-owned subsidiary named Connex. Connex focuses on network attached storage systems and enterprise-wide storage area networks. Connex is expected to begin shipping product in the coming weeks. Unlike earlier Western Digital enterprise products, which were mostly high- speed SCSI drives for installation in servers and high-end workstations, Connex will offer independent, scale-able network storage.

"Another subsidiary, SageTree, is focused on data warehousing software and services," says Massengill. "This is the direction we've set for the company in the enterprise market, and subsequent initiatives and technology investments will reflect this strategy."

Of course, all that's of little consolation to the employees of the company's current enterprise storage division.

As the company's release reads, "Western Digital currently employs approximately 420 people in its Rochester enterprise drive operation. These employees will be given consideration for job openings at WD operations in San Jose and Irvine, Calif., although it is anticipated the vast majority will be laid off and given severance and outplacement packages."

Massengill was sure to thank the members of the team for their service. "We are grateful to our Western Digital Rochester people for having made such an impressive early impact in serving this market and a gallant effort to succeed as the space became more competitive. We also greatly appreciate the support we have received from the greater Rochester community over the last five years," he said.



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