Seagate's complacency blasted away - what now?

Navigating the tanker through treacherous waters

SSDs and organisation changes

Turning to SSDs, Whitmore said: "In the Enterprise market... (the) road map includes the commitment to solid state devices. We are set to deliver our first SSD product into Enterprise applications later this calendar year. SSDs and solid state technology are essential to our long-term product roadmaps, and we will maintain our investment levels to deliver leading technology."

Chief financial officer Pat O'Malley mentioned the SSD technolgy when answering a question: "We also have some investment in our solid states, you know, technology that we look at that's probably above and beyond what you've seen in the past." That sounds promising.

Responding to a questions about plants and organisational structure, Luczo answered: "The org structure changed to a business unit structure. We're now shifting it back to a functional structure, and we do believe there's opportunities in terms of both management layers, ability to delegate and restructure, that there are some opportunities certainly to pursue there. And longer term structural issues, as you mentioned, whether or not it's any facility, design related or factory related, have to be assessed in terms of the overall outlook."

What he means is that the number and location of factories and R&D plants will only be changed if the long-term outlook changes. For example, the remaining Londonderry plant might have its future questioned if pressure on costs was unabated and there was a need to gain further manufacturing efficiencies, meaning lower costs.

The company has already consolidated some manufacturing operations; the finish media operation in Milpitas, California, has been closed down, as has the Limavaddy aluminium disk substrate plant in Northern Ireland, and the Pittsburgh R&D centre is being closed.

Looking ahead in the short term, the company thinks that there will be a market for 110m disk drives in the first quarter of this year, about the same next quarter and possible slow growth after that. It entered the final 2008 quarter thinking there was a total market need for 156m drives, so the recession has cut that number and will keep it low for the rest of the year. It thinks it might earn $1.6bn - $2bn in the current quarter, but is intent on making a profit and not another loss.

That means it has to offer drives with high areal densities so as to get back the two per cent of market share it thinks it lost in Q4 '08, without unwanted price cuts driving the volume needed. It has transitioned from 6-inch to 8-inch wafers for read/write head production and that will drive the cost/head down.

Can Seagate do it? It certainly isn't complacent any more and it knows that sales in the drive market, transitioning slowly from 3.5-inch to 2.5-inch drives, depend utterly on areal density leadership with no quality problems. The recent Barracuda firmware problems indicate that customer loyalty could prove fragile and that product quality must not suffer in the rush to increase drive capacity.

Accelerating an oil tanker while changing the way the officers are organised and making sure it's navigated away from rocks is a tricky proposition. Doing so in stormy economic seas adds to executive stress levels. Seagate needs to be stressed enough to step forward faster, but not so much that it stumbles - again. ®

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