Why Did IBM Drop Drives?

 
 
By David Morgenstern  |  Posted 2003-01-02
 
 
 

On the very last day of 2002, IBM and Hitachi finalized their deal for a joint venture in the storage market. The companies claimed the new company will "accelerate the delivery of advanced storage technologies and products." Ignoring the spin, perhaps its just another way of saying that times are tough in the technology business.

Last April, the two companies announced their intent to break out their storage divisions and form a new company, primarily owned by Hitachi. According to reports, the final closing price paid to IBM was a tad over $2 billion.

Most IT reports concentrated on forthcoming high-end clustered servers and storage-management software from the new company. No surprise there.

At the same time, Hitachi executives also looked forward to leveraging IBMs hard drive operations into the companys consumer products—what Vice President and Director Yoshiro Kuwata called "a wide range of emerging digital appliances." (Can we say "personal video recorders"?) So why did IBM pass on the hard drive manufacturing business? After all, there was a time when IBM had a solid share of the hard drive market. It wasnt really so long ago.

"The real story is that its hard to make a buck in the storage game and IBM decided it wasnt worth chasing [for] anymore," one former engineering exec mentioned. "Hitachi is taking things over, since as usual, the Japanese have a long-term view on just about everything. The bottom line: Consolidation continues, and IBM was the next to give up."

This last point recalls some recent history. Back in late 2000, Maxtor bought out Quantums hard drive business. Since then, according to market trackers, IBMs market share has fallen from some 25 percent to a single digit. The sales pace was taken up by Maxtor and Seagate. Ouch, indeed.

It was all much easier in the days. At Comdex, IBM would invite storage high-rollers—press folks and analysts—to a special briefing, held in a penthouse suite in one of the tall Las Vegas hotels. There we would receive the word from IBMs Almaden Research Lab, with extensive visual aids.

Despite the glow of nostalgia, I remember all the presentations having a primary message: "Rotating-memory" devices (hard drives) will be with us for a long time. I even recall looking through a microscope to check out some prototype itsy-bitsy hard drive that some day might be used in a similarly small computer—one that you might swallow, or something.

In those days, the path to success in the storage market seemed crystal-clear. All that IBM or any other company needed was better technology. That vision met up with greater market forces.

Or as my engineering buddy said: "Funny how everyone needs storage, but no one can seem to make money providing it!"

David Morgenstern is a longtime watcher of the storage industry as well as a veteran of the dotcom boom in the storage-rich fields of professional content creation and digital video.

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