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IBM Bails Out of the Hard Drive Market 351

Posted by timothy
from the spinning-down dept.
DJ STORM writes: "IBM has decided to exit the hard drive market citing the market has become too competitive.They plan to sell 70% of the their HD business to Hitachi. The new company name is unknown. One has to wonder if this has anything to do with IBM's troubled Deskstar GXP series." IBM will still have part ownership of the resulting venture, but it sounds like no more Deskstars. Update: 04/17 16:33 GMT by T : You may also find interesting some older posts about IBM's work on increasing hard drive storage (1, 2, 3); hopefully, the new company will continue that R&D effort.
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IBM Bails Out of the Hard Drive Market

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  • by Darth_brooks (180756) <clipper377@NoSpAm.gmail.com> on Wednesday April 17, 2002 @12:00PM (#3358930) Homepage
    will this be anything like the numerous times IBM has decided to get out of the desktop PC market?
  • Bugger (Score:3, Insightful)

    by Izeickl (529058) on Wednesday April 17, 2002 @12:00PM (#3358935) Homepage
    Ive actually had zero problems with all my IBM drives, got about 500 gigs worth kicking about and not had a problem in 4 years. Always found their price to size ratio pretty nice. Oh well change as good as a rest.
  • by parc (25467) on Wednesday April 17, 2002 @12:00PM (#3358936)
    I very seriously doubt the deskstar caused IBM to give up. It was one version of a single product in a long line of products they produced.

    Think about it. Prices are $1.4/GB, and people still complain about the price. At what point do you say "we're making...$.50 per drive we sell. Let's give up." ?
  • by Brento (26177) <.moc.razotnerb. .ta. .otnerb.> on Wednesday April 17, 2002 @12:01PM (#3358941) Homepage
    IBM has decided to exit the hard drive market citing the market has become too competitive.

    Too competitive? They were the ones introducing all the cool features. They were the first ones out with quiet IDE drives, the first ones with adjustable noise levels, the first with the "pixie dust" stuff with awesome platter density, the first big (60+ gig) laptop drives. I can't think of another hard drive company that was nearly as competitive as IBM was, and for them to say the market is too competitive, that really tells you something.
  • Kudos to Big Blue (Score:5, Insightful)

    by nesneros (214571) on Wednesday April 17, 2002 @12:03PM (#3358966) Homepage
    For following the "real" rules of capitalism, and bowing out when they can't compete. I've seen too many companies lately either using legislation (telcos, entertainment) or shady business practices (MS) to avoid competition, instead of re-structuring their business or leaving the market. All this does, in the long run, is stifle the economy and give capitalism a bad name.
  • by swillden (191260) <shawn-ds@willden.org> on Wednesday April 17, 2002 @12:14PM (#3359045) Homepage Journal

    Yeah I thought that they were the trend setters. How many times have I read "IBM breaks its own record by creating bigger/better/faster/smaller" hard-drive.

    I suspect that their research in drive technology will continue, but that they'll make money by licensing the technology rather than building drives. It's actually a common IBM strategy; IIRC IBM receives over $1B per year in revenues from licenses of its research patents.

    In true /. style I didn't bother to read the original article, but I also suspect they'll hang onto their laptop drive business, because it's a relatively high-margin business and because that's the area where their researchers have most thoroughly trounced the competition.

    Note that while I am an IBM employee I have no direct knowledge of IBM's hard drive division (don't even know any of the engineers to collect scuttlebutt from). My relationship with IBM's hard drives is as a customer.

  • Bad Power Supply (Score:5, Insightful)

    by crow (16139) on Wednesday April 17, 2002 @12:37PM (#3359201) Homepage Journal
    The situation you described sounds like a bad power supply. As others have mentioned, it's the controller, not the hard drive, that requests IRQs--that's something that is usually part of the motherboard chip set. So if the failure you described is accurate, you're seeing failures in multiple parts of the system, which is a strong indicator of a bad power supply. That could also explain why you had more than one drive fail in the system, though often with drives you do find reliability comes and goes in bunches.
  • by CaptainPhong (83963) on Wednesday April 17, 2002 @12:42PM (#3359236) Homepage
    I don't really think it's fair to condem them for one bad line of drives... For those of you with short memories, prior to the Desktar GXP, IBM drives were frequently (most often actually) the first choice for quality. Somehow this fiasco gave all their drives a bad name. They certainly weren't the first manufacturer to have serious problems with a particular line or model of drive (in fact, probalby all of them have been hit at one point or another.)

    Years ago my 1.6 Gig Western Digital Caviar drive started to suddenly sprout bad sectors. I gave WD a call and was given an abusive and insulting runaround by the tech I got. I got so mad that I had to smash a few things to calm down before calling back to try to get someone else. The next guy was actually really nice and gave me an RMA# immediately once he realized I knew what I was talking about. After having the replacement several months, I booted up one day and the HD suddenly made the sort of noises you'd expect from a modem. That's when I discovered that the 3 platter 1.6 gig Caviars had been quietly recalled because they were extreemly prone to a variety of failures. I was rather mad, not so much because of the defect (stuff happens), but that the recall was apparently delayed and not well publicized.

    IBM could have handled the situation better for sure - a well publicized recall is in the best interest of the customer. However, more often than not, keeping the problem as quiet as possible is in the best interest of the company. IBM apparently tried to keep this one quiet (or was simply blind to the problem for a long time), but they got blasted instead. Sadly, I don't think the loss of this competitor in the HD market is a good thing.
  • by Ed Avis (5917) <ed@membled.com> on Wednesday April 17, 2002 @12:46PM (#3359254) Homepage
    This is also, perhaps, a sign that IBM isn't so interested in the PC / small system market. The big appeal of IBM in the past was that they produced almost all the parts for their systems in-house. So if there was a problem with a particular model of disk or monitor or RAM chip, IBM would know the full history, know who designed it, and have the expertise to support it. Or more importantly, IBM's knowledge of the parts they used helped them put together reliable systems to start with. (There was a time when every IBM upgrade (for the PS/2 line) was guaranteed to work with every other IBM upgrade.)

    But since the reorganization of the 1990s, IBM divisions have been encouraged to sell outside the company, even to direct competitors, and make money in their own right. In this context it makes a lot of sense to spin them off.
  • by Zathrus (232140) on Wednesday April 17, 2002 @12:55PM (#3359318) Homepage
    It's a lot easier to bow out of a market when it's a small portion of your total revenue or profit.

    The IBM Storage Systems division is/was a part of the Hardware divsion. That division also includes PC, notebook, mainframe, and various other hardware sales. It, as a whole, accounted for ~39% of the total revenue and ~29% of the total profit of IBM for last year (as per their latest 10K [edgar-online.com]).

    Now those aren't numbers to sneeze at, but consider that the HD division is a segment of the entire Hardware division. And while the numbers aren't split out, if you read the 10K you'll see they blame a lot of the decline in revenue for the Hardware group on pressures in the PC and HDD market.

    Given all of that, IBM can look at the long term market and spin off a portion of itself to an independant company which it retains a large share of. Realize some immediate cash gains, and you reduce the risk you are exposing the company to. If that 3rd party company folds, then you have a tax write off on an investment, and it doesn't look nearly as bad on the balance sheet.

    But the important thing here is that IBM has this option. The storage device market is not their lifeblood. If you released a holographic storage system tomorrow that blew the entire HDD market out of the water, IBM would be hurt, but not fatally impaired.

    The same is not true for most of the companies you mentioned. They're looking at potential extinction (particularly the middle men in the entertainment business - e.g. the studios and record labels). So they're fighting for their lives. They can't just "leave the market" or "restructure their business". There is no new market and no new structure for them to go to and retain anything even vaguely like what they have now.

    I deeply disagree with their attempts to have government prop their industries up, but I'm also realistic. Cornered animals don't fight nice.
  • by Anonymous Coward on Wednesday April 17, 2002 @12:56PM (#3359324)
    IBM's 60gb Deskstar 7200 rpm IDE is $136 - exactly the same price as Maxtor's about five lines down. Sounds competitive to me.

    Which actually proves the point. IBM is likely creating a product that is higher quality (lower noise, better density etc.) which cost more to make, but selling at the same price. This leads to thinner profit margins. Add to that the cost of R&D for all these cool gizmos they are throwing in, and the profit for the HD is much lower than Maxtor's.

    If they are a higher quality, they could potentially sell at a higher price - except that as acknoledged above, most people aren't willing to spend the extra $ for a quieter HD. So to be able to sell the HDs, they have to price them at a cost which is competitive to the other HD manufacturers. The market is "too competitive" in that IBM can't make a reasonable profit - it's more economically viable for them just to leave the market.

    Note that this does not contradict the arguments for competition in a free market. The consumers benefit because they get the HDs they want at a lower price. Additionally, a "Free Market" should cut both ways - if companies have the freedom to create any products they want, they should also have the freedom to not create a product, if they so choose (because it is economically non-viable).

  • Re:Bugger (Score:2, Insightful)

    by AntiNorm (155641) on Wednesday April 17, 2002 @01:03PM (#3359358)
    Ive actually had zero problems with all my IBM drives

    I've had zero success with my IBM hard drives. Put simply, IBM hard drives are junk. Even worse is their customer service -- when you try and RMA a hard drive, they send you "refurbished" hard drives, which is just a nice way of saying that they are hard drives that others have already RMAd! And if you want to try and get a refund out of them, just about the only way is to take them to small claims court.

    IBM deserves to have to get out of the hard drive business, IMO.
  • by Anonymous Coward on Wednesday April 17, 2002 @01:05PM (#3359368)
    For the last few years, IBM Management has been running a chop shop. We've been selling off real-estate and entire divisions. This results in a short-term gain on the bottom line and some relief from divisions that lose money, but hurt the company in the long run. Quitters don't finish the race.

    Lou Gerstner was a horrible CEO, and this is probably his last insult to the company. Selling divisions only helps the stock price for a little bit.

    Ever hear the line, "eating your own seed corn?"
  • by Anonymous Coward on Wednesday April 17, 2002 @01:12PM (#3359418)
    "too competitive" for IBM means the profit margin is too small for them. That's the same reason they are getting out of pc manufacturing. IBM doesn't like commodity markets. The profit margin is too small.
  • by JJ (29711) on Wednesday April 17, 2002 @01:29PM (#3359539) Homepage Journal
    Unlikely. IBM made bad decisions in the PC market and yet kept thinking they could compete. And yet, because of their strengths, they thought they could make fabulous amounts of money there which they did for awhile. Data storage does not have the same appeal to IBM's marketing department and so is unlikely to lure the company back. Besides, they teamed up with a major player in the market and Hitachi probably has a restrictive agreement with them.
  • by garver (30881) on Wednesday April 17, 2002 @02:20PM (#3359863)
    The same is not true for most of the companies you mentioned. They're looking at potential extinction (particularly the middle men in the entertainment business - e.g. the studios and record labels). So they're fighting for their lives. They can't just "leave the market" or "restructure their business". There is no new market and no new structure for them to go to and retain anything even vaguely like what they have now.

    Then kudos to IBM for diversifying and changing with the times. The IBM of today looks very little like the IBM of 10 years ago, which looks even less like the IBM of 25 years ago. Remember when they were a typewriter manufacturer? Remember what a typewriter is?

    What IBM does right is always look for the new cheese instead of complaining about how the old cheese smells or how someone stole it from them. It explains why they are still a contendor after so many years.

  • RTFM, Dude (Score:3, Insightful)

    by ewhac (5844) on Wednesday April 17, 2002 @05:44PM (#3361590) Homepage Journal

    IBM's drive packing instructions [ibm.com] are pretty darned explicit. And they tell you right up front that improper packing is grounds for voiding the warranty.

    I recently shipped a flaky DDYS-T18350N back to them for RMA replacement. I followed their packing instructions. The drive was replaced without incident.

    They're not trying to invent reasons to screw you out of the warranty; they're trying to eliminate damage during shipping. Without careful shipping, how can they know the failure they're seeing was due to faulty manufacturing, or due to static buildup during shipping?

    Schwab

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