History (1998): Seagate Shugart Free

The news came July 21 and it was as if Seagate had dropped a bomb: Al Shugart was put out to pasture.

The new boss of the number one storage industry is youngster Steve Luczo.

Is Seagate still Seagate without Shugart?

According to company’s press release, “Seagate Technology announced that Stephen J. Luczo, president and COO, was elected CEO and named to the board of directors. Alan Shugart will be leaving Seagate at the request of the company’s board. In demanding Mr. Shugart’s retirement from the company, the board stated that the time had come to make a change in the leadership of the company.”

In plain terms, Shugart has been stripped of all of his functions, that of CEO as well as chairman. This is the second time a board of directors has shown him the door; the first was in 1974, when he was ousted from Shugart Associates, despite the fact that the company bore his name!

Departure without fanfare
Of course, Seagate’s board along with Luczo thanked Shugart for “his absolute dedication and contributions to all aspects of the company’s success, etc.” Nevertheless, this doesn’t change the fact that the grand old man of the storage industry, and co-founder of the company in 1979, has been asked to take his leave, without the possibility of a graceful departure or the opportunity to bow out on his own. Shugart dug his heels in, and his dismissal took him by surprise.

The inside scoop is that Shugart had always said: “For me to leave Shugart, I’ll have to be fired or die.”

Of course, Shugart had to go some day, but it could have been handled with a little more dignity, the curtain descending amid grateful applause, rather than a hurried departure out the side door.

He didn’t want to go
In fact, Al Shugart had no desire to leave. For several months, the board had been urging him to go, until the time came when they forced the decision upon him, during a Sunday board meeting on July 19, after the close of the fiscal year.

This will permit a fresh start with a new chief, Steve Luczo, whom Shugart had brought into the company in 1993 in order to become his right-hand man, before designating him as his successor.

Step by step, Luczo climbed the rungs, bypassing the company’s president and COO.

To a certain extent, the board also appear to have wanted to put an end to this division of power, and the resulting two-headed management style.

Mister Disk Drive
Mister Disk Drive, the grandfather of the storage industry, is thus leaving Seagate. But is he giving up the storage industry for good? Given that he wanted to continue at Seagate, it’s not hard to infer that at 67, Shugart doesn’t feel ready for retirement, and that he’ll find something to do. He has no shortage of options, given the weight of his name and his personal fortune.

Shugart has made an enormous amount of money. In 1996, his total compensation represented more than $16 million, according to the San Jose Mercury News, June 16, 1997. In 1997, he cleared $9 million just by selling off part of his shares in the company.

And he’s far from extravagant. Rare were the times when Shugart dressed in suit and tie – his preference was for shortsleeved shirts and open collars.

He doesn’t, in other words, lead the high life of a Finis Conner.

In fact, Shugart is somewhat tightfisted. One example: there was no question that he would give us a complimentary copy of Fandango, the book he wrote about the restaurant he owns in California. We slipped a $20 bill into an envelope and sent it to Julie Still, VP corporate communications, who never leaves his side, and received a copy of the book, which lists for $18.95, by return post.

Humanity
Yes, he is a businessman, but those who know him well appreciate above all his human side. His opinions and intuitions about the industry and technology were always closely heeded. We talk to him almost every year, and published 6 interviews in 10 years. He was always available, taking all questions and responding with apparent candor, despite the fact that during our last interview, he admitted he doesn’t much like talking to the press. He knows many things, but when he didn’t have the answer to some question, he didn’t beat around the bush.

He was always more interested in HDD drives than in tapes or software. The last time we saw him was at ComdexFall in Las Vegas, NE. He never looked better, and was an absolute master of his subject.

A golden boy replaces an engineer
An engineer at heart, Shugart will now be replaced by a money man, golden boy Luczo, who, before joining Seagate, spent 10 years in investment banking after a stellar university career culminating in an MBA from Stanford.

Shortly after Luczo’s arrival at Seagate, Shugart gave him full powers to diversify the firm in software. Shugart’s goal was to hit the billion dollar mark with Seagate Software by 1999. This goal is going to be hard to attain, given that current sales are roughly $300 million per year, but there are strong indications that Seagate Software will be the subject of a highly profitable IPO in the weeks or months to come.

Money talks
If Shugart’s departure is a shock, it’s easily explained by figures. The last fiscal year, closed in June, was not good, in fact it was terrible for the firm. True, WW demand is growing slower, but Seagate lost significant market share to IBM, Maxtor, Fujitsu, Hitachi and Samsung. Seagate’s annual sales have dropped, after all, by nearly $2 billion, and the $58 million in profit of the previous year have become $530 million in losses.

Imprimis yes, Conner Peripherals no
Looking back over a longer period of history, Shugart, the industry pioneer, must get credit, of course, for the very first PC HDD drive, a triumph for Seagate until 1996, when the company was caught off guard by Conner Peripherals’ steady rise, and was forced to catch up after a delayed entry into the 3.5- inch form factor and a failed brush with 2.5-inch drives.

To Shugart’s credit is the acquisition of Imprimis, a nice coup, although the same cannot be said for the 1996 acquisition of Conner Peripherals, which marked the beginning of Seagate’s troubles. For Shugart, the company’s ≠1 adversary was also the ≠2 computer firm, IBM, where he got his start. And history proved him correct.

Shugart, like everyone, didn’t see the advent of the current storage crisis, which has gone on for nearly a year, and shows no sign of letting up. At the beginning of ’97, he set a completely unrealistic objective of $19.5 billion in sales for the company in 2001.

Among his grand management schemes, was the idea of vertical integration. Today, Seagate is the ≠1 head and media manufacturer, and also a major assembler of motors.

At the insistence of Tom Mitchell, the company was also the first, beginning in 1981, to undertake production in Southeast Asia, a move later followed by all the competition.

Awaiting a replacement COB, current directors Gary Filler, 57, and Larry Perlman, 60, one-time president of Control Data and currently CEO of Ceridian, have been appointed non executive co-chairmen of the board in the interim.

A new chapter is now commencing. Shugart will hardly stay home and cry over his fate, since he maintains his position on the board of SanDisk, a flash disk technology firm in which Seagate invested in 1993. Since 1992, he is also a director of Valence Technology, a manufacturer of rechargeable batteries.

Accelerating change
How will Luczo alter the course of Seagate Technology’s direction? Very little, it would seem. If anything, he’ll most likely speed up the rate of the modifications already underway, according to Larry Perlman. “This change in no way reflects a fundamental change in the strategy,” said Luczo himself, during a conference call on the day of his appointment. He also confirmed that he would pursue the strategy of vertical integration, but would like to get more out of it, leveraging the company’s in-house integration, and becoming once again a time-to-market company in the desktop HDD segment where market share was lost, particularly to Maxtor.

Seagate has thus decided to halt supplies of its disk heads to competitors, and even to begin buying on the outside, in particularly because its internal production, although low-cost, is not technologically advanced enough for 3.2GB per-platter HDDs.

Luczo did, however, broach the subject of some adjustments in the organization, in the weeks to come.

Alan F. Shugart, 67
1930 Born in Chino, CA, on September 27
1951 University of Redlands, CA, bachelor of science in Engineering/Physics
1951 He joined IBM the day after he finished college as field engineer; managing a variety of programs including IBM’s 2321 data cell drive; design team 1301 which developed the first disk drive with bearing heads; and IBM’s 305 Ramac, the first rigid disk drive
1969 VP of product development at Memorex, where he recruited a number of IBM engineers over beers at the nearby Paddock Lounge
1973 Co-founded Shugart Associates, a pioneer in 5.25-inch floppy disk drives
1974 Ousted from Shugart Associates
1975-79 His “time in the wilderness”; consulted privately; opened a bar with some friends; bought a salmon fishing boat to work as a commercial fisherman
1979 Co-founded Shugart Technology – which became Seagate Technology – with Tom Mitchell, Doug Mahon and Finis Conner; becomes president, COB & CEO of the new company
1980 Seagate launches the first 5.25-inch HDD drive for PCs 1981 First company to manufacture in Southeast Asia, in Singapore
1984 Founded Monterey Air Plane Co.
1984 Founded PC resources, a tiny computer maintenance business in Monterey, CA
1984 Finis Conner, with whom Shugart worked for more than 20 years, leaves Seagate to start Conner Peripherals
1985 Founded RK Shugart, an upscale women’s clothing shop in Carmel, CA, run by his wife, Rita
1986 Found Fandango, a restaurant in Pacific Grove, CA
1989 His company acquires Imprimis from Control Data
1993 Founded a publishing company, Carmel Bay Publishing
1996 His company acquires Conner Peripherals
1996 Backs his dog Ernest as a candidate for a House seat in California’s 17th District in Monterey and Santa Cruz counties, to protest vs. the US political system where Democrats and Republicans areconservative liberals and liberal conservatives [is currently writing a book, Ernest Goes to Washington]
1997 Makes the cover of Business Week next to such legendary Silicon Valley figures as Larry Ellison (Oracle), Marc Andressen and Jim Clark (Netscape), Andy Grove and Gordon Moore (Intel), John Chambers (Cisco), Steve Jobs (Apple), Scott McNealy (Sun) and Lew Platt (HP).
1997 Recipient of the 1997 Reynold B. Johnson Information Storage Award by the IEEE
1997 Voted for the fifth consecutive year “the most admired industry executive” by the attendees of the DataStorage Forum
1997 Remains COB and CEO, hands over the position of president to Steve Luczo
1998 Ousted from Seagate Technology

Stephen J. Luczo, 41
1979 Stanford University, bachelor’s degree
1984 Stanford University, masters of business administration
1984 With Salomon Brothers, an investment banking firm, most recently VP and head of West Coast Technology; works with Seagate Technology for the acquisition of Imprimis
1992 Co-head of the global technology group at Bear, Stearns & Co., an investment banking firm
1993 Senior MD of the same group
1993 Joins Seagate as SVP corporate development
1995 Promoted to EVP, corporate development and COO of the Software group
1997 Appointed COB of the Software group
1997 Named president and COO of Seagate Technology
1998 Replaces Shugart as CEO of the company

This article is an abstract of news published on issue 127 on August 1998 from the former paper version of Computer Data Storage Newsletter.

Notes:

• At 76, Shugart dies on December 2006 in Monterey, CA. The cause was complications after a recent heart operation, said his son-in-law Mark Peterson.
• Luczo retires from Seagate in November 2021. He is married to Agatha Relota Luczo, a fashion model who has appeared in numerous magazines.