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Samsung driving forward

With its shipments jumping last year, the company is no longer playing the role of bottom-feeder in the disk drive industry.

Samsung is going upscale in yet another arena: disk drives.

The Korean electronics powerhouse, which has achieved success in recent years by focusing on higher-end products, is moving away from its legacy as the bargain-basement maker of hard drives.

"Several years ago we felt we had to be the low-cost leader," Albert Kim, U.S. national sales manager for storage products at Samsung, said this week. "We don't take that attitude today."

And in a sign that the company is gunning to be at the forefront of disk drive technology rather than at the rear, Samsung is developing its own tiny drive with a platter just 0.85 inches in diameter.

Samsung could have licensed intellectual property from Toshiba, which has already produced a drive that small. But the company is putting its research and development dollars into the product, which is targeted partly at the growing cell phone market. "We developed those drives (through) our technology," said Henry Hong, Samsung general manager for hard drive products in the United States.

In terms of overall hard drive shipments, Samsung ranks behind the four big leaders--Seagate Technology, Western Digital, Maxtor, and Hitachi Global Storage Technologies--according to researcher IDC. But Samsung, which shipped its first drive in 1988, is growing quickly. Its shipments rose 63 percent last year, from 16 million units in 2002 to 26 million in 2003, according to the company. And Samsung expects to ship 40 million drives this year.

IDC analyst Dave Reinsel said in a recent interview that Samsung has been a steady competitor. They also appear to be ambitious. "They seem to have the attitude that they want to be a more significant player than they are today," he said.

There has been speculation in the industry this year that Samsung was looking to catapult itself into a leadership position by acquiring a drive company. But Kim rejected the rumor. "There's no validity to that," he said.

Samsung's disk drive strategy is focused on parts of the market that are growing. The company doesn't bother with high-end drives for server computers and corporate storage devices. That segment of the disk drive market isn't projected to grow much between now and 2008, according to researcher Gartner. Far greater growth is expected in the notebook computer arena. Earlier this year, Samsung introduced a 2.5-inch drive, which is the typical size for mobile computers.

Tiny drives for consumer electronics devices also are seen as having great potential. Drives 1.8-inches and smaller already have been a hit in music players like the Apple iPod. Industry observers also see a lucrative opportunity for putting drives into advanced phones to store data such as photos, video or music.

Samsung itself has announced a cell phone that includes a drive, although obstacles such as cost and durability loom when it comes to drives in phones.

In addition to Samsung and Toshiba, China-based GS Magicstor has announced an effort to build a 0.85-inch drive. Samsung's Hong said his company's target is a drive capacity of 4 gigabytes. That's the same capacity as 1-inch drives in the iPod mini, which can store 1,000 songs.

Moving from commodity-level products to premium models has been a key to Samsung's overall progress in recent years. In cell phones, for example, the company has increased its market share with a focus on stylish, high-end phones with novel features. And it has moved from selling low-end televisions to cutting-edge flat-panel sets. In total, the company's revenue increased 10.8 percent last year, to $56.6 billion.

Kim said a key to Samsung's growing success in drives was higher quality products made possible with a factory in Gumi, South Korea, which began production in 1996. Samsung's recent disk drive growth has been concentrated in sales to original equipment manufacturers--companies such as Dell and Hewlett-Packard that make name-brand PCs. Just as Samsung has turned heads in fields like cell phones, the company's disk drive business is making an impression on those manufacturers, Kim said. "I think we're getting a lot of respect," he said.