Matt Massengill, chief executive of Lake Forest-based Western Digital Corp., isn’t known for cockiness.
But get him talking about Western Digital’s ability to make it in the cutthroat world of computer disk drives, and he’ll give you an earful.
“We have one of the lowest cost structures and the ability to produce a lot of drives with our size and scope,” said Massengill, whose tireless cost cutting and restructuring have allowed him to say that.
Ask about competitors and you’ll get another earful.
Milpitas-based Maxtor Corp.?
“They’re struggling,” said Massengill, who cites Maxtor’s rising inventories and losses, which have sent investors running for the hills.
Big Asian rivals Toshiba Corp., Hitachi Ltd. and Samsung Electronics Co.?
“They’re what I would call wholly-owned subsidiaries,” Massengill said. “We have different fundamentals. Somewhere, the economics of the others have to look pretty unattractive.”
If there seems to be a bit more swagger in Massengill’s lexicon these days, there’s good reason.
A few weeks ago, Western Digital officially made its foray into the market for laptop computer drives. Western Digital made mobile drives in the early 1990s but exited the market by 1997 amid competition from IBM Corp. and Toshiba, which made drives for their own portable computers.
This time will be different, Massengill said.
For one, “the market is much bigger than it was then,” he said.
These days, “captive” producers,IBM and Toshiba,aren’t the only game in town. Hewlett-Packard Co. and Dell Inc. buy most drives for portable computers now.
And Western Digital is bolstering its production muscle. The company expects to up spending on its plants from $132 million in the 12 months ended July 2 to $250 million through July 2005.
Plus, in a slim-profit business, Massengill said that the margins on mobile disk drives are higher than those for desktop computers.
“We don’t expect the notebook margins to fall that fast over a long period,” he said.
New Logo
Mobile drives aren’t the only new thing for Western Digital.
Two weeks ago, the company unveiled a new brand name. The company redesigned its logo with a dominant “WD.”
The rationale?
As Western Digital does more business abroad, Massengill said he thought the company’s name might confuse buyers.
“Our name comes across in all sorts of ways,” he said.
Besides, the word “Western” in the company’s name might not be the most welcome of terms,especially in the Middle East, he said.
If Western Digital seems to be undergoing a bigger shift, it could be because it has to succeed in mobile drives this time.
A recent report from Merrill Lynch & Co. analyst Shebly Seyrafi said weak drive sales to makers of desktop computers could lead to a sluggish 2% growth rate for drive makers through 2008.
Drive sales to computer makers “are tracking somewhat less than originally expected,” Seyrafi wrote, due to weak consumer demand for PCs.
The market for drives for servers and other business computers are seen as somewhat better, with prices going up there, Seyrafi said.
Scotts Valley-based Seagate Technology seems to be gaining market share in the so-called enterprise market, he said.
Drives for Microsoft Corp.’s Xbox video game console and for Dell computers are bright spots for Western Digital, Seyrafi said.
Western Digital’s gains with Dell are seen as coming at the expense of Maxtor, according to Seyrafi.
That’s something Massengill likes to talk about. In the past few years, Western Digital had a hard time shaking bad news from the PC market and rumors about faltering sales of Microsoft’s Xbox.
Initial enthusiasm about Western Digital’s 2001 deal with Microsoft to make drives for Xbox gave way to fears the console wouldn’t be able to compete head-on with Sony Corp.’s dominant PlayStation 2, which doesn’t use a drive.
Then, renewed fears about a price war and the shaky PC market didn’t help matters. But Western Digital cut costs and sold off businesses in the past few years. It’s also gained market share in the consolidating drive market.
“We believe we have the lowest cost of any of the other disk drive producers,” Massengill said.
Ask Massengill where he sees his company’s biggest growth and you get a similar refrain: Consumer electronics such as set-top boxes, digital music players and computers for cars.
“They buy lots of big disk drives,” Massengill said of consumer electronics makers. “Like the TiVo, 80 gigabytes only gives you nine hours of recording. So we’re talking very high capacity drives. And we’re seeing them in things like the navigation systems for cars to security camera recording.”
Rival Technology
Massengill brushes off the potential of a rival technology, solid-state storage, to take over some of the markets he hopes to dominate.
Unlike Western Digital’s drives, solid-state storage devices don’t have moving parts and store data through a series of chips and circuits. They’re also more expensive than disk drives.
“There are some who think solid-state storage will be bigger and wonder when one is going to replace the other,” Massengill said. “Solid-state will be the memory of choice for low-cost applications. But when you need more features, you’re going to see a disk drive.”
