History (1991): Storage Products, New IBM Organization

A new organization, named Storage Products, based in San Jose, CA, will handle magnetic and optical disk and tape drives.

Will it do better than its former OEM division completely supervised by the Armonk’s head company? Let’s say it can’t do worse.

To try to increase its business, IBM Corp. (Armonk, NY), the $67 billion company and the world’s largest manufacturer, formed a separate line of business (LOB) for printer operations, and for storage products, and gave new freedom to its personal computer business.

In the peripheral segment, the aim of the operation is to improve productivity and try to sell more outside. One of IBM’s spokesmen told us, a few months ago, that among the 21 strategic targets of the company in the coming years, images were number one, OEM number two.

By making its storage activity or Storage Systems Products Division (SSPD), formerly an Enterprise Systems division, now independent unit Storage Products – but not a separate company – and managed by Ray S. AbuZayyad, IBM has made a big step in this policy. This later, a new member of IBM’s corporate management board, will now report to senior VP Terry Lautenbach, member of management committee. He formerly reported to Carl Conti who is retiring.

Storage Products will develop or manufacture magnetic or optical disk and tape drives in San Jose (CA), Tucson (AZ), Mainz and Berlin (Germany), Fujisawa (Japan), Havant (UK) and Martinez (Argentina).

An OEM policy not completely new
But this policy had been scheduled some time ago. There already was an organization headed by W. Bowles, VP WW OEM, then divided by areas (AsiaPac Rim, Europe), and afterwards (very) small teams per country.

John C. Baits, GM of IBM Europe for OEM, at a press conference at last CeBIT in Hannover, said: “We started with OEM in 1984 with our 3380 disks,” and, afterwards “we would be pleased if 10% of our sales in Europe came from OEM in the future“, without giving any figures or dates.

He named four distribution sectors for peripherals: direct sales, dealers, VARs and OEMs. For the first time, 2 years ago, IBM’s OEM division had its own booth, separated from the main company’s one, at Hannover’s show in Germany as well as at Comdex in Las Vegas, NV.

According to US evaluations, the new Storage Products division ought to report close to a $11 billion revenues in 1991, including sales to the head company. These figures seem beneath the truth, even if they do represent 16% of the company’s revenues. In a WW $24 billion HDD market, Disk/Trend accredits already $11 million to IBM this year just for captive sales of rigid disk drives, without counting disk drive OEM sales, and tape and optical drive sales.

But what are IBM’s chances to do better? Will it reach its aim that is to make more than 10% in storage product sales to OEMs, which would rank the company third, behind Seagate and Conner? Even if IBM will remain the primary customer of the Storage Products unit, will AbuZayyad reach his goal to gain 20% of the storage market in 1992? Will companies like Conner, Seagate, StorageTek and others, be threatened by the efforts made by computer manufacturers like IBM, but also others like Hewlett-Packard or Digital Equipment to enter the OEM market?

Few customers
That’s unlikely. IBM has been a player in the OEM market for quite a while and for instance Bull, Siemens or DEC have been buying high-end disks or tape drives from Big Blue for several years.

In less than 2 years, the leading computer company has made an effort to sell its products to other computer manufacturers, but with not so much success.

Its rare customers known for 5.25-inch and smaller HDDs are CMS, System Industries, Western Digital and recently Apple for a 168MB 3.5- inch model.

Lacks in the catalog
Big Blue’s catalog is far from offering all storage products. IBM manufactures high-end cartridge drives, like 3480s and 3490s, but it doesn’t produce any helical scan recording units, and especially no 4mm DATs. Its 8mm drives are bought from Exabyte. It doesn’t manufacture QIC drives, and this can only please a large supplier like Tandberg.

IBM missed automated cartridge libraries at StorageTek’s great advantage.

In the optical field, IBM is one of the first ones to have launched a 3.5-inch magneto-optical drive. But its characteristics are already underneath those of Japanese ones. Big Blue is not in the WORM market, in the 12- as well as in the 5.25-inch format, neither (for the moment) in 5.25-inch erasable drives nor in jukeboxes it buys from FileNet, Cygnet or Hewlett-Packard.

It also is completely nonexistent as far as FDDs and other consumables (diskettes, optical disks, magnetic tapes and cartridges) are concerned.

A strong point: the Winchester technology
Its most performing products are based on the Winchester technology it pioneered some 35 years ago. IBM has always been and still is at the top of innovations in HDDs, and its recent announcement in promising MR head drives proves it.

But its competitors are not so far behind. Seagate is also working on MR heads. When you look in IBM’s disk drive catalog, you can almost always find a competitive product with at least equal performances. In the new 2.5.inch HDD sector precisely, no one, and for sure not IBM has been closed to Conner Peripherals sales.

Seller but also buyer
Even for its HDDs, Big Blue often uses other manufacturers, to make sure it has a second source or to acquire a product it doesn’t manufacture. Let’s not forget Seagate that lived its first glorious moments with orders from … IBM. More recently, you could find Conner’s 2.5-inch drives in portable computers from … IBM. The difficulties IBM had, or will have to face are less technical than politic. To sell peripherals to OEMs today, you have to work with your customers at the beginning of their computer design. The peripherals characteristics are a big part of the system’s performances. Conner was successful because it believed in this theory that ends up selling a product to large OEMs before it is even manufactured and by developing it with them. This means that, more and more, drive manufacturers enter in their customers’ R&D laboratories.

On a quality/price basis, no one buys IBM
And this is what hurts IBM. Can a computer manufacturer let its best competitor, and even engineers of the new Storage Products independent unit see the development of coming products? An end user often chooses IBM, even when another supplier offers the same quality/price ratio, because he knows Big Blue will last. It’s less risky than buying from smaller companies, it’s the assurance for a computer manager that his boss won’t complain about a hazardous choice.

But for an OEM, it’s the contrary: for a comparable quality/price unit, he won’t choose IBM. Here Big Blue’s problem is not its products, but its name. Making independent its storage activity could even be harmful for IBM if its other departments really play the game by putting Storage Products drives in competition, even more than before, with outside companies. On another side, independence will mean profitability and should lead to extra efforts in sales and marketing that have been far below the market’s other independent actors’ aggressiveness.

This article is an abstract of news published on the former paper version of Computer Data Storage Newsletter on issue ≠47, published on December 1991.