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New Fujitsu hard drive aims for middle ground

The "sweet spot" for disks used in servers is moving from 18GB drives to more profitable 36GB models, but as margins continue declining, disk makers have been trying out a variety of strategies to maintain revenues.

Fujitsu announced a larger hard drive for server computers that's seen as key to the company's efforts to wrest storage market share from IBM and Seagate while staying ahead of other rivals.

The 36 gigabyte (GB) drive will be available in the first quarter of 2000, according to company executives. A similarly large drive from IBM is due later this year, but Big Blue is planning a drive twice as big for 2000. In the meantime, companies like Quantum and Maxtor are trying out new kinds of storage devices.

All are facing a market that has been focusing on storage capacity, rather than make. The "sweet spot" for disks used in servers is moving from 18GB drives to 36GB models, according to industry analysts, but as margins continue declining, disk makers have been trying out a variety of strategies to maintain revenues.

It's not been an easy time for hard disk makers. The trend of declining profitability has hit hardest those companies that make no or few other products--Seagate, Western Digital, Quantum, and Maxtor. IBM, Fujitsu, and Toshiba, which have computers and other product lines to carry them through hard times, have fared better.

Volume is growing at a fast clip. The number of server-class drives manufactured will expand to a projected 1 million drives this year, according to Disk Trend analyst Bob Katzive.

Seagate and IBM often leapfrog each other for first place, with Fujitsu in third. "Toshiba is coming on very strong," Katzive added.

Fujitsu has about 12 percent share in the high-end drive market, according to Joel Hagberg, senior director of storage products, selling to Sun Microsystems and other major computing manufacturers. Overall, the company's drive shipments have increased from less than 2 million in 1995 to 17 million in 1998 and a projected 20 million this year, he said.

Fujitsu Computer Products of America, the group that makes disk drives as well as other products, had 1998 revenues of about $1.2 billion, Hagberg said.

But Fujitsu and its rivals have all been casting about for ways to keep revenue streams alive. One strategy is to build higher-performance, higher-profit drives used in servers that demand high capacity and fast access speeds. Those drives typically are based on the SCSI connection technology, compared to the IDE technology more popular in desktop computers. The high-end drives usually spin faster, allowing them to read and write data faster.

Their edge in profitability likely won't be the case for long, according to Disk Trend's Katzive. The erosion of margins "has already started, it just hasn't reached the same level of intensity" as in desktop drives, he said.

Accordingly, Big Blue is working on a 72GB drive that will debut in 2000. Fujitsu doesn't believe it's worth manufacturing such a model right now, Hagberg said, since to reach that capacity, the drive would be 1.6 inches tall. Most computer companies prefer to buy drives that are 1 inch tall--the standard for desktop computers--he said.

Capacious 72GB drives "probably are overkill for the server mainstream at the moment," concurred Katzive. Among manufacturers that build disk arrays--the collections of disk drives that act like one giant drive--"the one-inch form factor is highly preferred," he said.

Network-attached storage to the rescue
Another strategy storage companies are using to find revenue is to expand into devices called network-attached storage, or NAS, essentially low-cost file servers that can quickly be used to create storage space over a network. In this area, Quantum touts its line of Snap products (acquired from Meridian Data), Maxtor has its MaxAttach products (acquired from Creative Design Solutions), and Western Digital has Connex products (acquired from Crag Systems).

Such moves haven't impressed Disk Trend's Katzive. "They put an anchor out to windward against a sea of troubles," he said. "They look at their profit and loss and say, 'Oh, yuck,' then they look around for things where they can leverage their capability into something a little higher-margin."

The strategy also raises the issue of competing with the server companies that buy disk makers' products. "They're competing with their customers," said Hagberg. "We do not anticipate...offering a device similar to what our competitors are doing."

Katzive believes that's less of a problem. "As long as they are not competing with the companies doing really heavy servers it's probably not too big an issue."