History (1993): IBM Turning AdStar Into Subsidiary

The umbilical cord was cut between IBM Corp. and its computer storage activity AdStar (San Jose, CA) that has just been turned into an independent subsidiary.

It’s the first time, and probably not the last, that a historically strategic segment for IBM, storage for its computers, is changed into a separate entity, even if, for now, it is completely under the control of the head company.

And the portion is huge: $6.3 billion in 1992, close to 1/10 of entire Big Blue.

Louis V. Gerstner Jr., IBM’s new chairman, has appointed AdStar’s new COB & CEO, Dr. Edwin (Van Wyck) Zschau, 53, a major politic member of the Republican Party as well as a businessman, founder in 1968 of System Industries (Milpitas, CA) and its CEO for 13 years, then more recently COB & CEO of Censtor (San Jose, CA), a manufacturer of Winchester heads. The IBM board of directors also has elected Ed Zschau as IBM VP. He reports to Patrick A. Toole, IBM SVP, manufacturing and development. Ray AbuZayyad, until then VP & GM of AdStar, will become ≠2 of the new subsidiary with the position of president and COO, reporting to Zschau.

“Under their leadership, and with wide freedom of action, AdStar will be more responsive to customers and faster in seeking new market opportunities, “said Gerstner.

Zschau seems very excited in his new position: “Our objective is no less than to revolutionize the information storage industry and achieve exceptional commercial success.”

This subsidiary change over shows that Gerstner will keep on with the OEM strategy started a couple of years ago by his predecessor John Akers and that can sum up as: “At IBM, everything is for sale.”

Big Blue no longer manufactures sub-elements, only for computers they distribute. All the components are for sale. And here mainly all disk and magnetic or optical tape units manufactured in its new subsidiary’s large plants (Rochester, San Jose, and Tucson in the US, Fujisawa in Japan and Mainz in Germany).

IBM will only be a customer of AdStar, just like others. Let’s notice that the HDD plant in Havant (UK) and the tape drives in Valencia, Spain, don’t directly depend on AdStar.

Since 1984, Big Blue had started OEM sales of storage products, but this was only for large 3380 disks for mainframes.

In 1990 came AdStar (Advanced Storage and retrieval), but it was only a division, changed into a LOB (Line Of Business unit) a year after.

When it was managed by AbuZayyad, only one real big OEM customer had signed, Apple.

Zschau hopes to recuperate actual customers of Seagate and Conner, but also plans to directly sell to microcomputer users by mail orders. In two words, all still has to be done.

Success does not only come from inventing Winchester disks 36 years ago, having an advanced technology, like for instance MR heads and being more independent than in the past. You also have to learn how to s, in the midst of an extremely competitive industry. Having IBM as a name could look like an advantage, here it’s a disadvantage.

When Compaq needs disks, it rather buys from an independent manufacturer like Conner Peripherals than from its favorite competitor.

And what will be IBM’s internal position now, looking for a better productivity, when it sill has to integrate a new disk drive? Will it be ordered from its subsidiary, or from one of the numerous and independent competitors?

Let’s grant IBM for the excellency of its high capacity products, but for current products, which means large volumes, you can often find elsewhere a better quality-to-price ratio.

If all or part of the company’s products are for sale, won’t this part be for sale one day?

AdStar, now a subsidiary, will probably offer a percentage of its capital to the stock exchange market to recuperate some cash.

Afterwards, anything can happen. It won’t be the first time a company is turned into a subsidiary to be sold. Hasn’t IBM almost completely disappeared from the printer market by just keeping a small 10% interest in Lexmark?

This article is an abstract of news published on the former paper version of Computer Data Storage Newsletter on issue 64, published on May 1993.