U.S. Industry in 2000 Studies in Competitive Performance (1999) / Chapter Skim
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11 Hard Disk Drives
11 Hard Disk Drives
Pages 287-328
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From page 287... ...
Like many industries that emerged in the twentieth century, the disk drive industry was dominated by American firms during its early years. Unlike other industries, however, the United States never relinquished its leadership.
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From page 288... ...
global demand to the domestic supplier industry." The Origins of the Disk Drive Industry One possible explanation for the success of the American HDD industry, therefore, is American success in the computer industry. This explanation seems reasonable on the face of it.
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From page 289... ...
In Eastern Europe COMECON organized the computer industry in such a way that DZU of Bulgaria was designated as the principal disk drive supplier for all computers in the region and became the most vertically integrated producer in the world. Only in rare cases did European disk drives find their way into American or Japanese computer systems.
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From page 290... ...
Given these trends, and the development of national clusters of computerrelated capabilities in these countries, one might have expected other Asian companies to erode America's position in HDDs. Much the same competitive dynamics faced the HDD industry as disk drives were adapted to fit into a PC.
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Compared with the computer industry, the Amencan HDD industry held a roughly steady 75 percent of the global market throughout the 1980s and then increased its share to more than 80 percent by 1992 (Figure 2~.
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From page 292... ...
Source: The Data Storage Industry Globalization Project Worldwide; Disk/Trend, Inc. Although the market share for American computer manufacturers fell throughout the 1980s, the American floppy drive industry practically disappeared, and the world increasingly turned to non-American suppliers of other computer components and peripherals, American firms continued to be the overwhelming source for HDDs.
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From page 293... ...
All of these advances were accomplished on increasingly smaller disk drives. Since the 1970s the disk drive's size, called form factor, has decreased, from 14 inches to 5.25 and 3.5 inches in the 1980s.
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From page 294... ...
Fujitsu, Hitachi, and NEC all shipped 5.25-inch drives before or concurrently with Quantum, Maxtor, Micropolis, and IBM. Western Digital, another leader in 1996, did not make disk drives until 1988 when it acquired Tandon's HDD operations.
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Japanese firms have also been among the leaders in incorporating advanced technology in their disk drives, specifically the new, thin film magneto-resistive (MR) recording heads.
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All companies have technology roadmaps, and technological progress has moved along well-known paths, especially in the technological development of the current generation of disk drives employing inductive thin film heads and disks. IBM was the first company to ship disk drives with thin film inductive heads in 1979; drives with thin film media appeared four years later.
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From page 297... ...
Although the evidence comes almost entirely from the automobile industry, the general claim is that Japanese firms are less vertically integrated than their American counterparts and maintain closer relationships with suppliers, often through some equity holdings (Aoki, 1990; Hill, 1995; Dertouzos et al., 1989~. By combining market incentives with relational contracting, Japanese companies are reportedly more cost effective, flexible, and faster in coordinating operations than their more vertically integrated competitors.
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From page 298... ...
I also consider the extent of contract assembly of disk drives. In contrast to the microcomputer industry (see, for example, Langlois, 1992)
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Forward Integration: Computer Systems Is there a systematic difference between Japanese and American firms in forward integration into computer assembly? It is true that virtually all of the surviving Japanese HDD firms make computers, and that none of the American firms, save IBM, do.
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The captive market has indeed been whittled away, but the perception of Japanese companies as over-reliant on internal sales can be challenged on at least two fronts. First, as already discussed, captive sales have not made Japanese firms notably slower to innovate than successful American HDD firms.
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From page 301... ...
Home-Based Assembly: 1956-1982 In the 1960s and 1970s, before the introduction of the 5.25-inch disk drive, assembly of disk drives by American firms occurred primarily in Silicon Valley, the Los Angeles area, Minneapolis, Oklahoma City, and the region around Boston. Some HDD firms that were vertically integrated into computers also as 9This section draws heavily on McKendrick and Hicken (1997)
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. With almost 5 percent of global shipments, Europe produced more disk drives than all of Asia outside of Japan.
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303 V, ¢ m V ~ · ~ m ~ ~ 00 o ca ¢ O .
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In contrast, Japanese companies assembled almost none in Southeast Asia, and only 2 percent in the rest of Asia. Japanese companies instead continued to manufacture predominantly in Japan, where they produced 95 percent of their disk drives.
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By 1995 more than 64 percent of the world's disk drives were produced in Southeast Asia, generating nearly 61 percent of the industry's revenue (Table 4~. HDD production in the United States fell to below 5 percent of world shipments, generating less than 9 percent of world revenues, while production in Japan fell to 15.7 percent of shipments and 13.3 percent of revenue.
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From page 307... ...
How, exactly, did this strategy confer an advantage on American firms? According to industry participants, American industry's early move into Southeast Asia gave it the time to establish regional manufacturing, secure comple ~ iThis percentage is actually understated because it does not capture employment associated with a few of the least expensive components going into a disk drive base-plates, condensers, capacitors, screws, and so forth.
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From page 308... ...
An industry consultant who set up several overseas production facilities explained the benefits of making disk drives in Southeast Asia in this way: "While loaded labor cost is typically one-quarter of the U.S. equivalent, material cost can be 30 to 45 per cent less than in the U.S.
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309 that of American industry in the product segments most in demand. The timing, direction, and scope of globalization thus extended the leadership of America's disk drive industry by enabling it to move down the learning curve in overseas assembly while accumulating effective capabilities in managing internal and external international linkages in the value chain.
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(% of total 1983 0 2 2 100 0 1984 0 67 67 100 11 1985 23 339 361 94 45 1986 250 1,108 1,358 82 56 1987 1,565 2,703 4,268 63 61 1988 2,310 5,899 8,209 72 71 1989 3,620 10,692 14,311 75 74 1990 3,564 16,336 19,900 82 82 1991 3,866 22,170 26,036 85 90 1992 3,972 32,342 36,314 89 92 1993 3,904 39,368 43,272 91 94 1994 4,364 55,980 60,343 93 95 1995 4,623 73,153 77,776 94 93 1996 4,679 83,678 88,357 95 84 Source: Disk/Trend, Inc. FUTURE PROSPECTS: THE LOCUS OF R&D AND GLOBAL KNOWLEDGE MANAGEMENT Now that locational strategies are similar across companies, what will continue to sustain America's advantage in disk drives?
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Third, however, when measured by TMRC, which is more specific to magnetic recording research, the positions reverse, with Japan having a higher representation than Europe. Research publications were also classified according to the institutional affiliation of their authors.
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The most obvious fact about this research is the extent to which corporations are still involved in fundamental research in the United States and Japan but not elsewhere. Among firms, IBM remains the strongest company in magnetic recording technologies for hard disk drives and still has an enormous reservoir of technical talent.
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From page 314... ...
In particular, it is likely that not all relevant Japanese research appears in these journals.~3 But it is also true that research with commercial usefulness can come from anywhere, and companies need to have the capability to evaluate and incorporate new knowledge into industrial applications. In 1988, for instance, two scientists from France and Germany working independently published papers that directly influenced the development of so-called "giant" magneto-resistive heads, which IBM planned to incorporate into its disk drives in 1998.
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In the late 1970s, the HDD industry recognized that the technological trajectory had gone as far as it could without more fundamental research. The magnetic recording industry (tape, optical, and floppies as well as disks)
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These are the two most prominent centers for magnetic recording research, but other universities have received industry support and are strong in fields related to disk drives, including U.C. Berkeley, Stanford, Minnesota, Alabama, Washington University, and George Washington University.
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Both companies have strong Japanese research labs. To complement its domestic research related to disk drives, in 1987 Fujitsu acquired Intellistor, a data storage and subsystems design company in Longmont, Colorado.
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From page 318... ...
In 1995, although it held only a small percentage of the market, Fujitsu announced its plan to capture 20 percent of the worldwide market for hard disk drives by the end of 1996. One part of the plan was a commitment to increase manufacturing capacity in the Philippines and Thailand, consistent with the convergence in global strategy described in the previous section.
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From page 319... ...
Besides adding to its manufacturing muscle, Samsung continued to build up its development center in San Jose, California, where it had been developing disk drives since the early 1990s. The center is responsible for advanced engineering, product development and qualification, marketing, product planning, and technical support.
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Instead, it will leverage Singapore's strength in HDD manufacturing to improve process technologies, including testing, as well as offer more direct and immediate support to industry than do American research universities. It is also exploring innovations at the component level, such as a collaborative effort with IBM, Motorola, Fujitsu, Hitachi, and a local Singaporean company to "push the benchmarks" on channel chips that do the read/write function on hard disks.
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U.S. NEC Japan Japan Philippines Sagemf France France aFirms listed in rough order of HDD revenue.
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Locations for component development and manufacturing in vertically integrated firms are omitted. One of the most remarkable characteristics of the HDD industry is that, with very few exceptions, product development is geographically separated from volume manufacturing and, among the leaders, by great distances.~5 An important question is whether the trend witnessed over the last 15 years in the internationalization of assembly will extend to other core organizational tasks.
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From page 323... ...
In 1995 Western Digital ramped up production from zero to 750,000 units within three months (CRN, 1995~. In 1996 Quantum/MKE went from zero to 7 million disk drives in nine months (NST, 1996~.
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R&D. The only major impetus to shift the locus of R&D out of these countries comes from Singapore, which assembles more disk drives than any other country in the world.
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The business press initially expected that pattern to hold for disk drives as well: "Once in production, a disk drive is basically a commodity product that must be assembled as quickly and as cheaply as possible something that the Japanese are expert at doing" (BOO, 1984~. If anything, they lagged behind American firms in their ability to ramp to volume manufacturing.
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Yet technical progress in disk drives went largely unnoticed by those outside the industry and was achieved through heroic mechanical and materials engineering efforts in firms, especially in IBM, rather than through publicly funded research. Moreover, unlike software (Mowery, 1996)
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. "Fujitsu will produce small hard disk drives in Thailand starting this summer." Imai, K., I
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From page 328... ...
. The Competitive Advantage of Nations.
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