History 2003: WD Could not Afford to Pass on Read-Rite in Bankruptcy

HDD makers in the past have lived by 2 strategies: manufacture as many of their own components as possible, particularly heads and disks, true of Fujitsu, HGST or Seagate, or else buy them from independent makers, as was the case for Western Digital.

The only problem with the latter alternative is that the number of components sources has greatly dwindled in the past few years, especially for heads, with only 3 significant independent manufacturers remaining: SAE/ TDK, Alps Electric and Read-Rite. The risk had become too great that WD, although the same holds for rivals Maxtor and Samsung – could find itself in a corner with only 2 Japanese suppliers that might be tempted to agree to raise prices.

So it was that with the bankruptcy of Read-Rite, one of its largest customers, WD, had little choice but to enter into a bidding war for the head maker. Seagate Technology, HGST and Alps together also participated. The bidding started at $29 million, and it was WD that ultimately prevailed for $95.4 million, with an option, one it will likely exercise, to acquire the Read-Rite’s giant HGA factory in Ayuttaya, Thailand for around $62 million.

It will now be an enormous challenge for WD to restructure the nearly 6,000-person strong company, for a more efficient production of 80GB-per-disk heads of sufficient quality and quantity, considering too that the activity is extremely capital intensive. There’s another danger, by becoming a captive supplier of heads, that Read-Rite’s other former customers, namely rivals Maxtor and Samsung, will now prefer to look elsewhere. At the same time, such a move would put the latter firms on the same thin ice, with respect to SAE/TDK and Alps, that WD hoped to avoid.

This article is an abstract of news published on issue 188 on September 2003 from the former paper version of Computer Data Storage Newsletter.