Alan Shugart Interview EBA

IN(

SEAGATE TECHNOTOGY

Disk ddve kin$ tou$hs it out L SHUGARX the founder, chairman, presi- [1f#'"?,,llfi"ll::r1""" Shugalt: It hasn't dent, and CEO of Seagate TechnologY Inc, worked out that waY. There's admits that, contrary to rumor, he did not ll'u,lfi teuel ttrat i" signilcant

In some invent the hard disk drive. He was, in fact, designing in every country. of educacountries, because computers at IBM Corp when that company created ii* una curriculum "p".il" it's difthe device destined to repiace punched cards as the oJfered in the schools, method of choice for .tonng aut . "I've never invent- i'fflt"I"il "Jffit:"*i?ff:i capability, I don't see any diJed anlthing," he conJesses. ference. It turns out that in That's being a bit modest. Wtrat Shugart did play a big role in inventing was the independent disk drive industry, which continues to out-com-

pere the disk drive operations _of the.world s most formidable compuler and electronlcs manufacturers - US and JaPanese Scotts Valley, California-based Seagate also pioneered tle industry s move to manufacluring in Singapore, which was not only a key to the industrv's success but also a major factor in the electronics boom that contributed greatly to the island nation's economic success.

Shugart believes in a lot of things, like a cor-

noralion s responsibility to adhere lo the same snndards worldwide in its dealings witi employees. suDpliers, and customer.. There are also a lot of tirings Shugarl doesn'l believe in. includins economic nationalism, multimedia and jet

levels, just different directions that different countries have taken.

What is involved in the Gonstluction of a new facllity in Singapore that you recently announced?

We have four plants now in three locations We're going to uke lhose four Singaporel.

Iin plants and consolidale rhem in onelocation. The

.hole idea is to become more efficient,

save

didn't prevent him from expressing his views

footase than the four we've got now, will employ aboui the same number of people, but should have an efficiency improvement of about 30%

EBA: Seagate has extensive opelations of

various kinds in Singapore, Malaysia' and

,:r

Lusiness is. So some countries may have specialized, but I haven't seen any difference in skill

las.Wher Electronic Bzslzess Asia executive editor Robert Poe interviewed him beside the pool

bluntly and energeticallY.

,,1

oanies aie lhere. and lhat's lwhere ourl head

money, not only with the administrative efflciencies of having it all under one roof, but also because of the fact that when you build a new faciliff, you do a lot more with automation and modernization.

of Singapore's Oriental Hotel, Shugart, who had arrived from the US a few hours earlier, was thus tired rather than jet-lagged. That, however,

l

Penang, the skill level in vacuum deposition is reaLlv hish because all the semiconduclor com-

Thailand, ls there a natural division of labor in which the work that's most demanding is done in Singapole, the next most demanding in

So the new

facility will be Iess square

Along with other maiol investments by IBM Colp and Japan's Matsushita'Kotobuki Electronics (MKE), it seems to refute the

argument that singapole is in danger of losing its disk drive business.

It's just that you do different kinds of things ELECTRONIC BUSINESS

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1994 43

INIERVIEIIU vrith disk drives in Singapore than you used to.

When we started out we were going to make components lin Singapore]. lhen we were going to put ldrivesl together Now what we do is the final stufl the stuff you can really automate, like final testing, like printed circuit boards. That stuff is really good to do in Singapore, because we've trained so many people. We've had 10 years now of training people to make these kinds of things. so there's all this skill level because of

What is China's attlaction?

Two things. One, I think the market potential is huge, but secondly I think just my whole philosophy of becoming a global company you have to have al operation in China at some point in time. But when do you do that? I don't know, but we've got to get started and learn how to operate in China. And we'll do that in the near future, on a limited basis. We're going to do that fairly soon, I think.

expenence.

When you )ook at where you're going to do business, the bottom line is a complicated thing to come up with. You have to consider an arful lot of factors. And I don't think people who have not been in big business, and we are in big business, can appreciate all the things you have to look at. Like what does it cost you to close a plant? You never open a plant with the thought of

ln what time frame?

I would guess that within a year we'll have a small [assembly] operation in China. This will only be so we can learn to be a citizen in China, which we've got to learn how to do before we can have a big operation. We are going to practice, we're going to do something small in China so we can practice, because we want to be a cor-

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closing it. But you ought to know what it would cost you. And it costs different amounts in different parts of the world. And that's one of the hundreds of points you have to consider when you're going to do something in a country.

And sometimes you can buy parts from [the same supplier] in one country cheaper than you can lftom the same supplier] in another country.

W}ry is that? I don't know why. but it is.

Would the sholtage of engineels in to expand in

Malaysia cause you to hesitate that country?

That has not been a problem in Malaysia, the shortage of skilled workers. It's a shortage of workers in general that's the problem in Malaysia. There's a real serious problem. But it's not just engineers, it's all of them.

We are now bringing people from other Malaysian states into Penang state. But you have to

Do you see any other coun-

tries as potential disk drive manufacturing sites?

Sure, China. We distribute products in China, mainly from Hong Kong, but I think eventually we're going to have to have not only a more direct distribution channel but also I think we're going to do some operations in China too. I think we have to be careful getting in, go slowly.

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1994

There's a lot of engineering that goes into

a

disk drive, and you can't just say it's product development or not product development.

Because there's a lot of technical activity that goes on right now in Singapore. Process devel opment, manufacturing engineering, support engineering, that we couldn't do 10 years ago in Singapore, because it takes experience. So there is a lot being done here now and there's going to be more. And you can't separate

Deciding where to do business is a complicated thing

before you do it.

LLLC IRONIC BUSINESS

ls most of your disk drive development still being done in the US?

out engineering activity of

have government approval

44

porate citizen.

a

disk drive company and say this is product development and this isn't. Ifs too cloudy.

Why haven't the Japanese

been able to jump into the

disk drive market?

The Japanese were very big in disk drive development

and manufacturing up until 1984 or 1985. Hitachi, Fujitsu, Toshiba, NEC, Alps, you name

it, they were all big. At that point, it looked to me like the conclusion that they reached, and properly so, was that the technology was changing too fast, and that the manufacturers ln Japan were really good once a technology was implemented in a factory and making a lot of it.

But the technology and the kinds of things we were doing were changing so fast that it was not Drofitable for these comoanies that also made

along with a couple of companies in the US. At any point in time they could build a lot of disk drives. When I look at the competitive world 10 years from now there won't be a lot of competi-

tors. But half of them will be these large Japanese cornpanies that have kept their technology alive.

l I

How can the disk drive business straighten out some of the drastic cycles ol ups and downs that have plagued it?

The macro analysis is that the disk drive business goes as does the conputer business that if the computer industry is strong, the disk driye business is strong, if the computer industry is weak, the disk drive business is weak.

You're making a millior of somethirg a week,

I

and all of a sudden you can't sell a million, what do you do? You cut price.

Shuga.t: The Japanese are the competition

computers to continue to make all those disk drives. So they kind of pulled back from the disk drive business.

They did not pull back fiom the technology point of view though. All of them have kept their technology going. All they've done is pull back the quantity they're going to produce, because it was changing too fast. They couldn't make a lot

ls it ever going to be a less difficult business to be in?

No. People say "Gee, you have those price wars, how did you get through the price wars last year?" We've had price wars ever since we started. It's constant price wars. You know, the prices of disk drives erode 570 to 10% every quarter. So if you look at it on an annual basis, how can you ever stay in business? You can, but you have to be really good. You have to have really good cost reduction, really good yield improvement, you have to continue to introduce new products, the old products you don't make any money on you have to throw them away and get new ones. And it's a tough business, it's really really tough. And it's going to get worse.

of one thing.

Does increased volume declease costs in Why can you do it when they can't?

I don't know Whether the company opera-

tions were too bureaucratic or their systems didn't allow it or whatever, I don't know. But they were not able to do the same kinds of things that the American companies like Seagate and the other independent drive manulacturers did and every h&o years have a new product,

Can lAmerican companies] move faster?

Obviously, but why? Maybe it's because we were

willing to accept lower margins, I have no idea.

But there wasn't a long enough product life cycle

for the system of these really good Japanese companies, that are still really good, to make money out of it.

But you'le not writing them off?

Absolutely not, They are the competition,

the disk d ve industly as much as

it

does in

some othel industries?

It can. But there's more to it than that. Being

vertically integrated helps us quite a bit too, being able to make our own parts. We make all our own PCBS.

What are the most impoltant advantages of Yeltical integration?

First of all, you have to decide what vertical integration means. Vertical integration means you have the technical and the manufacturing capabiliry to make the make-or-buy decision. Do you make 100%? You obviously wouldr't want to buy 100% or you'd lose your capabiliS'. Uke for disks we probably only make 30% of the disks - We we use. could make more, and we have at some times.

i

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I

IlITERVIEW

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But we're vertically integrated in disks, we

have the capability to nake the make-or-buy decision. So if some other company has a fire sale,

they're cheaper, or they've got some technologi cal jump for six months, or whatever, then we'll go buy, And we can shut them off il we need to.

So that's what vertical integration means.

So if you have a vertical integration capability, it n.reans you buy at the lowesr price, whether

you buy it fiom the outside ol make it inside.

Do you evel leach the point where a suP plier does such a good job that you decide you never will need to make a certain palt ot com' ponent?

I think that's the time when you probably ought to get off the stage. When people quit clapping, you get off the stage.

Yet isn't that exactly what Quantum does, contracting out most of its manufacturing to MKE and building almost nothing itself?

I don't understand the Quantum equation. lt looks to me like MKE is subsidizing Quantum, giving them good prices.

Some obselvels say Seagate's profitability has less to do with its vertical integlation than

the fact that it sells a lot of highâ‚Źnd products.

How accurate is that assessment?

I think both those things are true, and a few more things as well. I think vertical integration leads you to profitabiliff, I think having a complete line of

drives from low to high minimizes problems when there's a problem in one part of the mar-

ket or you screwed up on a product, so you can make it uP

people's.

When do you think magneto-IesistiYe (MR) technology will come into widespread use?

There's only one company that's delivering disk drives with magneto resistive heads and thafs IBM, and they have been now for a couple

ASIA DECEIMBER 1994

Well, it turned out I was wrong. We didn't need it. with the evolution of standard thin-film heads, plus advances in disks, channels, and so forth, we're now up to 500 to 600 milliorl bits per square inch and we still don't need magtteto resistive heads.

So that's good news and bad news The good news is that we were able to continue to use inductive thin-film heads for a lot longer than we thought. 'fhe bad news was that we didn't have to brilg on magneto-r'esistive heads early, to get the yields and qualiW up and so forth So h 1995 there'll probably be three or four companies that have disk drives being shipped, including us, with magneto-resistive heads that are made by either us or IBM or somebody.

What effect has IBM'S lawsuit against you had? [Editor's Note: lBN.4 took legal action after

Seagate hired the engineer who had been in charge of lBl\4's MR head development effort.l Those dirtY rotten bastards. You can quote me on

that. I think that their lawsuit

anticompetitive

tural things, I think we're better managed. I think we have a better vision of the future, our balance between short and long term plans is better than other

ELECTRONIC BUSINESS

technology.

aglainst us was malicious and

Getting towards more cul-

48

or something, or some different kind of

l8M's lawsuit

on others.

of years.

ln disk drive recording technology one of the big parameters is magnetic recording heads.

It looked to me in the late 1980s, when we were about 30 million bits per square inch, that when we got to about 100 million bits per square inch that.,.we'd have to have magneto resistive heads

against us was malicious, anticompetitive, and that was the only reason they pursued it. We have a trial date set for January 9 [1995] in Minneapolis. I can't talk about the suit except to say that it has damaged us and we

expect full restitution. TheY sued us in 1991. This is 1994, and we still haven't introduced a

product with magneto-resistive heads,

What is behind the maiol moYe you've said you envision fol Seagate into softwale fot the management of data storage systems?

I guess that...in describing the vision I had of the future, I was looking at where I think the computer business will be 10 years from now, and what's going to drive it.

The ttring that's going to drive the computer business is the advances that are made in sem|

conductor technology, microprocessor speeds,

Mobile computing requirements haven't

memories and so forth, and disk drive technolo-

progressed as fast as people had thought in the last two years, and it doesn't bother me at all, because it means we sell more disk drives.

gy which will double every 24 months. Those

two things will drive the computer industry, drive it to client-server [rpes of systems. And there will be huge amounts of memory in client-server kinds of systems, so that individual users cat have access to immense amounts of data, because the data is going to be cheap, and the processors are going to be

How imDortant will multimedia be?

I don't know what multimedia means. People use the word multimedia as a buzzword. just like they use the word information highway.

It's a totally meaningless thing.

What they really mean is everything is digitized and on a disk drive. Then the next thing they

so lpowerfull that they can handle a lot.

But what's missing is some body's got to figure out how to handle all of this stufi the programming to handle all of this stuff. And thafs what I call data management software software to manage data, documents, to manage networks in search ol access o{ backup of, security of data. And there's some of it available now but not very advanced.

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I don't know

talk about is interactive video.

What the heck is that? Is it

what multime dia means.lt's a buzzword

home shopping? And that is it.

How important will software be for Seagate in telms of levenue?

At the time I [came up with this analysis] about a year and a half ago we were a US$3 billion company, and I thought we ought to grow into about a US$6 billion company before the end of the century. Of that, about US$4 billion would be in hardware. Maybe we'll do more than just disk drives, I don't know. About a billion {US dollars would bel in components. We were about US$100 million at the time, so that's a pretty good increase. And about a billion lwould be] in software, where we were at zero. We've already bought two lsoftware] companies and invested in a third.

You own aboui 25% of flash memory suF plier SunDisk Corp Iof Santa Clara, California].

What klnd of future do you see for non-volatile memory stolage?

That market will be huge. And it will be huge when mobile computing, which is more than "PDAs," require memory, and the smallest capacity disk drive you can get, say, is 500 megabltes and that won't be too long from now which is so much more than you'll need

for mobile computing. lThis] will drive the mobile computing requirement to flash memory, because the prices willbe low enough.

What else is there, besides games and home shopping?

Interactive video, what a big deal. Another buzzword. People like to really catch on and use

these words as hooks. Journalists are the worst.

But all these different kinds of pieces of information, whether it be pictures or audio or whatever, will all be digitized and put on disk drives. That's another reason why we'Il need all these disk drives. It's all digital, there's nothing multimedia about it.

What future do you see fol small form-factor disk drives, such as l.&lnch ddves?

It doesn't look good, does it? We're on our third-generation 1.&inch drive, and \'r'e haven't

put anything into production, fortunately.

There's no market. Maybe there will be, and maybe there won't be.

How about the scenario involving usels callying these small ddves on PCMCIA calds with them when they travel, and just plugging them into machines wherevet they ale?

That's bullshit. That type of application won't exist. Why would you want to do that? The whole concept, I just can't conceive of it happening. The world is not going to be that way. You're going to transfer data via wires, or via satellite dish, or whatever. You're not going to take a piece of hardware out ofyour computer and take it to your office.

There have been replaceable disk drives forever, cartridges, things like that. There's a market, but it's very very narrow. And I don't see it ever getting any bigger than a nafrow market.

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