April 29, 2002
Technologists Question I.B.M. Move
By JOHN MARKOFF
PALO ALTO, Calif. -- There are people who believe Silicon Valley is a misnomer.
For Al Hoagland, Iron Ferrite Valley would be a more appropriate way of capturing the spirit and the history of the nation's high-technology heartland. As awkward as the name sounds, it reflects the reality that for the last four decades the valley has been as dependent on magnetic disk drives made of iron ferrite and subsequent materials as it has been on computer chips made of silicon.
The semantic case has been harder to make since I.B.M.'s announcement on April 16 that it intended to sell much of its business in magnetic disk data storage to Hitachi. But Mr. Hoagland, who is the director of the Institute for Information Storage Technology at Santa Clara University and who in the 1950's was one of the developers of the original I.B.M. Ramac hard-disk drive, recalls a computer technology era that began before either the chip maker Shockley Semiconductor or its first offspring, Fairchild Semiconductor, arrived on the scene.
Indeed the valley was once bounded to the north in Redwood City by Ampex, which made magnetic tape recorders for storing computer data, and to the south in San Jose. There, a half-century ago, I.B.M. began research that would lead to the first rotating disk system for storing computer data.
The disk drive not only had a crucial role in I.B.M.'s early dominance of mainframe computing. Two decades later it was a factor in the role the I.B.M. PC XT had in corporate acceptance of personal computing.
"I.B.M. had a unique situation in essentially having a product that no one else had," Mr. Hoagland said. "It revolutionized the computer industry, and I.B.M. systems rapidly gained market position."
Moreover, tucked away in the hills south of San Jose, I.B.M.'s Almaden Research Center has long been considered one of the company's and the nation's science and technology jewels. Researchers at the laboratory have routinely made industry-leading technological advances in magnetic-drive data storage. Now, a still undetermined part of that research laboratory will become part of a joint venture to be 70 percent owned by Hitachi.
So there was some amount of quiet grumbling here in the days after the announcement of the multibillion-dollar I.B.M.-Hitachi deal, as many technologists wondered whether the computer maker was not mortgaging its future.
Does I.B.M. actually have a grand strategy in data storage, or has the company's new chief executive, Samuel J. Palmisano, simply opted for an expedient way to improve I.B.M.'s balance sheet?
One theory is that I.B.M. blinked in the face of tough competition and management mistakes that have caused its disk-drive business to lose market share the last two years — from nearly 25 percent of the market in 2000, to less than 10 percent in 2002's first quarter.
Stephen J. Luczo, chief executive of Seagate Technology, the disk-drive industry market leader, openly jokes that the hard-disk industry is not a business but a hair-raising extreme sport.
Certainly, the disk-drive business has its own dynamics.
"Unlike General Electric, where you can be in the top three in a particular business and be a world leader, in disk drives it doesn't matter," said David G. McKendrick, research director at the Information Storage Industry Center at the University of California at San Diego. "I.B.M. was in the top three, but it doesn't matter if you're not making any money."
In fact, it may take a peculiar kind of ompany to stay alive in a fast-paced industry that has now had the second merger among its leaders in the last two years. In October 2000, Maxtor, the No. 2 disk-drive maker, acquired the hard-disk operations of Quantum.
The technology is changing even faster. The areal density of disk drives — the amount of data that can be squeezed onto the spinning platter of a disk drive — has been doubling annually. At the same time, prices have been in free fall. The price that computer makers have paid for simple single-platter drives has fallen to less than $70 from $150 in just five years.
Execution of each new generation of technology has to be flawless or else market share can collapse overnight. And in fact I.B.M.'s capitulation to Hitachi appears to have been at least in part precipitated by a disastrous stumble the company made while shifting the manufacturing operations of its highest-margin disk-drive business market to Fujisawa, Japan, in 1999. The delays caused I.B.M. to more or less miss an entire product generation and sales cycle.
Numbers from Gartner, the information technology consulting firm, show that in a single year I.B.M.'s own storage system business went from buying 80 percent of its drives from the I.B.M. subsidiary to only 10 percent. So by handing off much of its disk-drive business to Hitachi, I.B.M. may have simply given up trying to keep pace.
There is, however, another, more intriguing possibility. For decades, critics have been predicting the imminent obsolescence of hard-disk drives as technologies like optical disks and flash semiconductor memory come to the fore. I.B.M. may have finally decided that the writing is indeed on the wall.
The computer maker, in other words, may be taking a big gamble that its research in molecular-scale electronics and other so-called nanotechnologies will in a decade or so make spinning magnetic storage disks obsolete.
"I.B.M. is abdicating the next 10 years and betting on the future," said John Monroe, a market researcher and a vice president at Gartner.
It is exciting to think that he might be right. With a sleight of hand, I.B.M. might be telegraphing a new data storage world that will open vistas even more remarkable than an Iron Ferrite Valley.
But if I.B.M. is betting more than a decade into the future, it is keeping a poker face. "We've been working on all these things," Robert Morris, director of the Almaden lab, said of the experimental storage technologies. "They're all interesting, and they all have promise, but there isn't anything on the horizon that is certain to replace the hard-disk drive."