HEWLETT-PACKARD SHUTS DOWN ITS DISK DRIVE MAKING OPERATION

The Hewlett-Packard Company of Palo Alto, Calif. announced on July 10 that it was closing down its disk drive operation in Boise, Idaho at a cost of $150 million. The company will focus instead on the extended-storage market, including tape drives, libraries and CD-recordable technologies.

In the context of the larger disk drive market, the event has several meanings. First, it suggests that the disk drive industry has become so competitive that only merchant drive suppliers can afford to compete.

Indeed, the market in recent months has been brutal on hard drive makers. Philip Devin a market analyst at Dataquest in San Jose, Calif. says, the industry saw monthly price declines accelerate to 5.3% a month in the recent past.

This assertions seems to be supported by other captive drive makers exiting the industry, most notably in 1994 when Digital Equipment Corp. of Maynard, Mass.—never a major force in the industry—sold out to Quantum.

With HP’s exit, only one major U.S. captive disk drive maker remains, IBM Disk System Division in San Jose, Calif., progenitor of the product category. The question is can IBM keep from suffering HP’s fate?

The other meaning for the larger drive market is that with HP gone, the competitive pressure has been eased somewhat. A major competitor, HP, has now become a major consumer of disk drives supplied by the industry.

Hewlett-Packard leaves its imprint on the industry. The company has a number of accomplishments. It was the first company with a ruggedized 3.5-in. disk drive. It was also a long-term player in the industry having built drives since 1977.

After Digital Equipment exited the market in 1994, some analyst predicted HP would be next, citing the increased competition of the market as forcing consolidation.

In addition, HP like other captive vendors could only market to their internal customers or to the subsystem integrator market. Large OEMs such as Apple, Compaq and Dell were unwilling to do business with HP, whose PC Division was a major competitor.

HP attempted to pioneer new markets for disk drive. It’s ill-fated 1.3-in. Kittyhawk drive debuted in 1992 was an attempt to find other applications outside the mainstream PC market for the drive: personal digital assistants, pen-based PCs etc.

The termination of the Kittyhawk program in 1994 ended the effort and added fuel to speculation about HP’s viability in the industry.

To remain competitive, the company concentrated its efforts at developing high performance, high capacity drives intended for the server market. It continued pursuing the add-on PC market via an aggressive campaign aimed at end user sales.

However, in the end all the measures to make the division self-supporting was to no avail. The company experience a $100 million operating loss in the first two quarters of this year and expects a like amount in the last two quarters, $150 million in the third quarter and around $50 million for Q4.

HP plans to continue supporting its installed base of disk drive customers although the company did not indicated how. The company’s facilities in Boise and Penang, Malaysia, employ 1,150 and 530, respectively. Employees will be transferred to other HP operations or provided severance packages.

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