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Seagate faces up to its foes

Seagate faces up to its foes

Seagate Technology shook up the IT industry last month when its board of directors fired the company's legendary CEO, Alan Shugart. He was replaced by Stephen Luczo, who has been with Seagate since 1997, most recently as president and chief operating officer. Luczo spoke with David Pendery about the storage industry and changes at SeagatePendery: What led to Seagate's sudden change of leadership?

Luczo: It's the old story. When the water level drops you see the rocks. One issue was that the company had failed to execute on time-to-market on the desktop for a number of years. Also, at the high end, we did not execute on a particular program (Seagate's Barracuda drive, released nine months late).

In the past, if a program had slipped at Seagate at the high end, while it might have impacted on operating margins, it would not have hit the revenue side because we were basically the only supplier. But this time, when the time-to-market issues hit us at the high end, there were two strong competitors, IBM and Fujitsu, that had products there. And so in the course of nine months we probably lost in excess of $US1 billion in revenue.

But the fundamental issues were that we were structured by functional organisation. There was not a real day-to-day focus in saying "How do we integrate [our functional organisations] in order to be the quickest and highest-quality deliverer of disk drives?"

What changes are in store for Seagate, its technology development, and its customers?

People speculate "Does that mean [Seagate is] going to abandon vertical integration, technology ownership, and manufacturing?" There will not be a shift in that strategy.

The changes relate to what we have been doing since September 1997 [when Seagate announced a reorganisation]. We brought in a new management team, and we've laid out a whole series of actions we have been executing. Our plan is to keep with this plan, maybe on an accelerated basis.

How has the price-per-megabyte plunge impacted on the storage industry?

You actually have to increase your focus on driving a real density curve, because in a price-competitive market, given the fact that material is such a big percentage of your overall costs, you have to reduce your material costs, and you do this by having fewer disks and heads and more efficient electronics.

All of this points to increased investment. That is Seagate's strength, and IBM's as well. So we have stepped up the pace of [research and development] in order to deliver the lower-cost platforms that are even higher technology.

Who are your most aggressive and successful competitors?

Our long-term competitors are the ones that have the same formula we do, and that means technology ownership and a strong capability for manufacturing. And that would be IBM and Fujitsu, which isn't to say we don't get tough competition from the independent guys.


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