Stuck between a rock and a hard drive

Enough with the gold rush analogies.

Right now IT types invoke the ol’ Wild West nostalgia when they’re talking about the potential in the wireless market. Before that, it was one of the most common –and hackneyed — ways to characterize the seemingly limitless growth of dot-com companies. But as Fujitsu’s exit from the 3.5-inch IDE desktop hard drive market today clearly demonstrated, too many prospectors can spoil the claim.

It certainly must have seemed like the hills were filled with riches back when only a few companies were supplying a growing audience hungry for upgrades in a burgeoning PC market. No wonder, then, that companies like Seagate, one of the early market share leaders, was quickly surrounded by Quantum, Western Digital, Maxtor and a host of others.

I first saw the dark clouds gathering in 1998, when almost all the above-mentioned companies suffered poor sales and impoverished final quarters. The manufacturers usually expect a seasonal slump in the summer, but for once not even the Christmas boom period helped stem the tide of red ink. For some hard drive players, like the now defunct Micropolis, this was the end. For others, like Fujitsu, it marked the beginning of a Survivor-like struggle to avoid being voted out by customers.

Fujitsu has made the right move for its global organization, but I’m disappointed for the Canadian subsidiary, which proved once again that it was possible to outshine your corporate parent. In 1999, Evans Research Corp. reported that Fujitsu’s product line dominated the Canadian storage scene, holding a full quarter of the market with the most shipments. The secret? Something we cover all the time in Computer Dealer News: the company built a very successful indirect sales channel. Through major distributors like Ingram Micro, Tech Data and EMJ Data systems, Fujitsu supplied drives to the white box builders which Evans still says makes up a good half of the total Canadian PC market. No wonder it took home the 2000 Reseller’s Choice Award, beating out Seagate and Western Digital. Its market share slipped somewhat this year, but the company was quick to respond with a new channel program April that was supposed to build up some strength in the SCSI drive market. That program, which I now imagine will be scuttled completely, included a low cost, next-day direct RMA service that guaranteed turnaround times by 10:00 a.m. for top-tier resellers. More importantly, Fujitsu is one of the few companies that recognized the need for well-reported, reliable Canadian pricing. It’s too bad that the company couldn’t achieve the same results in the U.S.

In leaving the desktop behind, Fujitsu is simply following the money. A lot has changed in the past two years, but the profit margins for anything surrounding the traditional PC have not gone anywhere but down. As they became commodities, the product lifecycles for desktops sped up to such an extent that upgrading the drive was no longer an attractive option for many users. Also, brand-name PC makers aren’t stupid; in response to demand they soon put higher-capacity devices in their own machines. This is what led to more industry shakeup, where Quantum got into bed with Maxtor.

The storage race now turns to mobile devices like laptops, where system builders are also increasingly focusing their attention. The only danger here, of course, is that its competitors will follow suit, and in a few years we could be in the exact same position at the laptop level we are at with PCs now.

Competition, according to accepted theory, is supposed to be a healthy thing that brings cost down and improves products and services for customers. It also usually weeds out the winners from the losers. Storage lures so many players because it seems like a sure thing — and there is some gold in them thar hills — but the rivalry it generates almost invariably leads to consolidation, which means white box builders and customers have fewer choices in the end.

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Jim Love, Chief Content Officer, IT World Canada

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Shane Schick
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