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Western, Sony bet on home servers

The companies will create a hard disk drive for use in home multimedia servers for storing audio and video data for PCs and digital TVs.

Western Digital hopes to boost its fortunes in the hard disk drive industry by digging into the prospective market for information appliances.

Western Digital, the world's third largest hard disk drive maker, is teaming up with consumer electronics giant Sony to create a hard disk drive for use in home multimedia "servers" for storing audio and video data for PCs and digital TVs.

With the view that ultimately all content will be digital, Western is hoping to cash in on the need for technology that can store a variety of content in an easy-to-use device.

Western's stock continued to gain today, reaching as high as $16.25 in midday trading. The stock has risen more than 3 percent since news of the arrangement was revealed yesterday and now stands at more than double that of its 52-week low of 7.1250, which it hit in October.

The company hopes that by finding uses for its products in consumer electronics devices, it can protect itself from brutal conditions in the PC market. Earlier this year an industrywide oversupply of storage devices and plummeting prices for desktop computers resulted in huge losses at the disk maker.

Already, devices that use hard disk drives to store information are appearing on the market. Replay Networks and TiVo are readying digital television recording systems that employ hard disk drives in the hopes the devices will replace today's traditional home videocassette recorders.

The WebTV Plus Internet set-top box already includes a hard disk drive for storing multimedia information too. In fact, Western competitor Seagate was an investor in WebTV before it was purchased by Microsoft.

Sony is also working with Western rival Quantum on similar technology. Sony and Quantum said earlier this month that they've developed a disk drive that can play one program while recording another, instantly replay a scene, and pause a live broadcast.

"The key is to use other people's money. Sony is a marketing phenomenon, really, so if you are going to be on a new technology, you might as well ally with Sony, let them bear the cost, and you get the upside," said Steven Frenkel, vice president of research at Joseph Stevens & Company, who has a "trading hold" on the stock. Western's main issue is getting its cost of manufacturing down, Frenkel said, so that it can make new high technology drives profitably.

Servers in your home
Ultimately, Sony and Western are hoping that a new category of information appliances--called home servers--takes off.

Companies such as IBM and Intel have been advancing the concept of using a server to act as the hub of a home network that connects PCs, audio-video equipment, and household appliances such as air conditioners and alarms.

Despite predictions that such devices would already be on the market in 1998, that hasn't happened. The market may also differ from the corporate server market. Rather than rely on a single server, home networks may rely on a series of less complicated servers, according to some analysts.

"The one monolithic server model is probably a bit of stretch. In reality, you will start to see hard disk drives used for multimedia storage more often," but maybe not as a common repository for data used by both PCs and TVs, said Kevin Hause, an analyst with International Data Corporation. Hause thinks that home servers with specific applications such as digital VCR capabilities will eventually find a place in the mass market.

Western and Sony said they'll have a prototype designed by March, and the product will go on sale sometime in 2000. Sony will work on digital video and audio processing for the unit, and Western will work on designing the drive itself, the companies said.

Bloomberg contributed to this report.