INCREASED COMPETITION U.S. disk drive makers in slowdown as Japanese firms speed up


SINGAPORE -- The U.S.-dominated computer disk drive industry is experiencing memory loss as reduced growth and industry consolidation have hit hard over the past few months.

Although U.S. companies have held a strong grip on the disk drive market, several companies fear increased competition from Japanese companies waiting in the wings.

Japan's huge capital reserves, the structure of its computer industry and market downturns all work to Japan's advantage and could leave weaker U.S. players on the rocks, U.S. officials maintain.

"There's definitely a slowdown and in an industry that is extremely competitive at the best of times," said Mike Morrissette, managing director for Western Digital.

"If Japan Inc. decides to get into it, it will be a tough battle. And I'd be very surprised if they didn't," he said.

Still, some companies are forecasting a recovery by the fourth quarter or by early next year.

Hard-disk drives are high-capacity data storage devices generally installed in computers, as opposed to lower-capacity floppy disks that can be inserted into the computer.

In recent years, the advances of hard drives have greatly expanded the computer's power and range, and Singapore has become a major manufacturing center for most U.S. companies.

But 1991 has brought some tough times caused partly by weakness in the personal computer market and by the economic slowdown in North America and Europe.

"A disk drive is one of the most expensive components in a computer, so [prices] naturally comes under more focus," said Dave Drennan, the Singapore-based regional vice president of sales for Seagate Technology Inc., Scotts Valley, Calif.

By some accounts, margins have dropped by 25 percent.

This has put weaker players under pressure. But the downturn has not hit evenly. Some companies with specialized or cutting-edge products continue to do well, particularly those making the new 2.5-inch disks or planning the 1.8-inch disks, and those in the 100- to 300-megabyte range report strong sales. One megabyte is equal to 1 million bits of information.

Boulder, Colo.-based Integral Peripherals, for instance, which is gearing up for the 1.8-inch disk, plans to acquire the Singapore facilities of Rodime Inc. or Prarie Tek.

"The reason we're not impacted by the slowdown is we're in very different market," said Steve Volk, Integral's chief executive.

U.S. companies have been dominant in disk-drive manufacturing for several reasons, industry officials say. The Japanese entered the floppy-disk drive industry early on, but had trouble innovating fast enough and were hurt by low margins.

Japanese companies have been reluctant to move into hard disks too quickly.

Officials also say U.S. companies are still much better at designing rapid product improvements in a fast-paced arena. Eventually the pace will slow, boosting the importance of marketing and low-cost manufacturing over new technology. But until then, U.S. companies have an edge.

Disk-drive makers see several reasons why the Japanese are a long-term threat. Although the largest U.S. companies have annual revenue of $2 billion -- a barrier for most new players entering the market -- the Japanese have so much capital that even $3 billion in start-up costs is not a major impediment.

Japan also has stalked key sectors of the computer industry, including semiconductors, solid-state mechanics, liquid display crystal screens and batteries, and most likely have disk drives in their sights. If the industry begins to settle on a standard, perhaps in the 80- to 200-megabyte range, the Japanese will be able to bring their manufacturing prowess to bear.

Finally, Japan's electronic companies are huge, diversified groups with enormously deep pockets, compared with U.S. disk- drive companies, which tend to produce only disk drives. Therefore during a downturn, Japanese companies can subsidize disk- drive operations and gain market share while the U.S. companies stumble.

Analysts say the U.S. survivors will be companies with deep pockets of their own or at least a broad range of products. Niche players may have it tougher.

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