‘So, as a company, we are not totally relying on the disk drive business’ – Don E Kennedy, Vice President, Seagate International

Don E Kennedy, Vice President, Seagate International.

Don E Kennedy is responsible for the sales and marketing
activities of seagate in Asia-Pacific. Joining Seagate in 1998, Kennedy is based in
Singapore. Before that he was with Western Digital holding various positions including
Vice President, Asia-Pacific Sales. He has spent more than nine years in the Asia-Pacific
region and is familiar with the business culture, infrastructure, OEM and channel
relationships in the region. Kennedy holds a Bachelors of Arts degree in Business
Management from North Carolina State University. Excerpts from an interview:

The hard disk industry is faced with a technology barrier
as far as capacity is concerned. How do you see capacity keeping pace with demand?

Well, in a sense, I think technology is ahead of the need.
Today, there are desktop drives with capacities of 25GB, but people aren’t at all rushing
out to buy them. There was a time before, when, disk drive makers were ahead of the
requirement. Today, the market is fractured from the standpoint of different applications.
For instance, set-top boxes don’t require high performance or high capacity but they need
a very cost-effective product. The sub $1000 PC market requires good performance,
reliability, quality and not the highest capacity. The very high end of the desktop
market-Pentium III 500MHz-to harness all the power of the processor and all the software,
has a much bigger requirement for capacity. What really drives the need for capacity are
two key points: applications-I call them ‘killer applications’, meaning new applications
that have a much higher requirement for storage; and the continuing emergence of the
internet, where people want to take information off the internet, file it, store it,
access it again, and that continues to eat up capacity. I believe that the industry is
very capable of keeping up with the demand for capacity, especially in the desktop market.

There is another theory that 4.3GB is a sweet spot in hard
disk capacities. It’s a critical level above which people may not be willing to spend on
higher capacity; especially, in a country like India, where internet penetration is not
very high. What are your comments on this?

The capacity of 4.3GB is a sweet spot and it has been a
sweet spot for a while, because all the vendors are producing that capacity in a single
disk format. As all vendors are producing that capacity, there are more of those available
and the cost per megabyte is very attractive. Today, people are utilizing 4.3GB and they
may feel that it is sufficient capacity, but, over time, they will run out of space. Yet,
they can just go out and add a second disk. The upgrade market still continues to be a
very important segment of the market. Typically, whatever the PC shipments are worldwide,
the hard disk market is always larger because of that.

The Indian market has recently undergone a transition from
2.1GB to 4.3GB. Looking at the slow shift, other manufacturers intend to keep the 4.3GB
drive going for an extended period of time. Is that true with Seagate as well?

Well, 2.1GB is still available, and as a matter of fact,
Seagate ships them. This is because, there is still a limited demand and we are able to
take our 4.3GB drive and manufacture that as a 2.1GB drive by removing heads. The demand
for the drives, is typically in non-PC applications, although some low cost PCs do still
utilize 2.1GB.

We clearly will be out of that capacity but Seagate will
not abandon the 4.3GB capacity point, independent of what Korean companies are doing . The
4.3GB is a very valid capacity point and we will continue to supply it to the market. Once
the 6 or 8GB single disk drive comes out, the cost per megabyte to shift from 4 to 8GB
will be very compelling for the market.

Again, India has not been through the internet explosion
yet, but I think it is going to happen with the privatization of the internet service
providers. Once it takes off, we will see an increasing demand for higher capacity drives.

Quantum has a tie up with a consumer electronics company to
put their drives in devices like VCR’s. What is Seagate’s initiative in that area?

We have formed a Consumer Solutions Group in the US, that
is working with different consumer companies on non-PC applications for disk drives. Our
products show up in a number of non-PC applications such as set-top boxes from Web TV,
copiers from Ricoh, fax machines and scanners. We certainly have plans in the consumer
arena and that is why we formed the CSG. This group will also be able to focus on the
software side.

How much of your revenues do you see coming from non-PC
applications?

We derive our revenues from a number of different areas. As
a company, we have the desk top drive group supplying to the desktop and also non-PC
applications, the high performance drive group which supplies to server, workstation and
storage networking applications, the removable storage solutions group which provides tape
products and then, we also have a software group. So, as a company, we are not totally
relying on the disk drive business.

Specifically, regarding how much of our revenue will be
derived from PC versus non-PC applications, I think it is clear that, over time, more
non-PC applications will become viable and we will most definitely put focus on those.

How does Seagate manage the varying demands of different
markets? For example, the US and Europe have already moved to 8GB drives while India has
only recently changed to 4GB drives.

Seagate is the world’s largest disk drive manufacturer. We
have the widest range of disk drives of any company in this industry. From 2.1GB on the
desktop, all the way up to our 50GB Barracuda drives for servers, workstations and storage
applications.

We are very vertically integrated. We manufacture many of
our own components. So we have the ability to make very rapid changes as the market
changes. If the market wants lower capacity drives, that’s not a problem for us. The U4 is
a perfect example of this. It was designed in Science Park in Singapore, specifically
targeted towards the low cost PC and non-PC applications.

As far as the Indian market is concerned, we have a stated
goal, which is to be the market share leader in all Asian markets and, to do that, you
must provide what the market wants. What India wants is different from what Singapore
wants, which is different from what Australia wants. In India, we focus with our channel
partners on key OEMs in this market, on providing the capacities that they need, at
effective prices.

In the disk drive business, the $100 mark is considered a
breakeven level, below which it becomes nonviable to produce drives. Is this true for
Seagate?

Seagate as a company has been building disk drives for
almost 20 years, so we have seen many different phases of the industry and the phase we
are in now has seen volumes go up, but prices continue to come down. It is a very
competitive industry that we are in. It is important to be able to compete at under $100.
Seagate can and will compete with drives priced below $100. Basically, all the disk drive
companies are making drives below $100 with the exception of IBM.

Why is the warranty on Seagate hard disk drives three to
five years abroad, but only one year in India?

In the dealer community [in India], they feel pretty
strongly that one year is what they want to support. From the OEM standpoint, it is
dependent upon what kind of warranty they have to offer to their customers and that is, on
a case by case basis.

India is a unique market due to the [legal] import and
export requirements for components like disk drives. So Seagate is very much in line with
what the industry is doing in India in terms of warranty.

What kind of growth do you expect from the Indian disk
drive market over next year?

The Indian economy has been relatively unaffected by the
economic crisis, so the market growth has continued to be very stable. Our OEMs in India
believe that the government sector will continue to grow, the home computer market will
probably become more prevalent as the lower cost PCs start to appear and with the internet
becoming much more viable than it is today, that will also drive demand for PCs as well as
disk drives.

Do you have plans to open an India office?

We have no plans right now for an Indian office. We work
very closely with our authorized distributors and partners.

How does India rank in terms of market size with respect to
other Asian markets?

The Indian market would probably be in the top five in
Asia. Japan, Korea, China, Australia and India, I would say those are the top five.

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