History 2004: Hitachi GST Puts Half-Billion Dollars in “Mega-Manufacturing” HDD Plant

They all know they’re operating at a loss, yet each hopes their neighbors will fall first. As long as we can remember, HDD manufacturers have measured their well-being exclusively in terms of market share gains, rather than by gross margins. But what else can they do?

The annual sales volume for HDDs has always increased, but eventually it has a limit. What’s more, it’s a handful of OEMs, the major PC manufacturers, who are both the main customers and the toughest negotiators, ready to drop one supplier for another for a question of a few cents difference in the cost of a HDD.

And of course, they can’t afford to be out of stock for an instant. If you can’t ship, your 2nd source competitor will be glad to fill your orders.

Consequently, every single HDD maker is continually trying to increase its production capacity, and since everyone’s doing it, the glut from overproduction systematically leads to lower prices.

True, there are fewer manufacturers than there once were, but as long as there are more than one, the system won’t change.

Of the recent announcements of new production increases (Fujitsu, Hitachi, Maxtor in China), the most insane by far is that of Hitachi GST, which has decided to invest up to $500 million in a “mega manufacturing center,” according to the company’s own terminology, in Shenzhen, in southern China.

Only a few weeks earlier, the same firm had already announced an investment of $200 million to double the output of its factory in Thailand.

The new Chinese facility in the Shenzhen Export Processing Zone will employ 7,000 people, “in its first phase,” with the project including initially the construction of a 35,000-square-meter facility producing 3.5-inch HDDs in 2005, then ultimately any form-factor devices.

Dirk Thomas, HGST’s VP of business development, will be GM of the new facility, while at the same time, he was named to the new position of president of Greater China-based manufacturing operations, which includes responsibility for customer services and support centers in Shanghai, Shenzhen and Taiwan.

These are not the first moves into China by IBM’s former disk drive division. HGST already employs 4,500 people in Shenzhen at 2 existing manufacturing companies producing disk heads and media. It also has an agreement with subcontractor ExcelStor, a subsidiary of Great Wall Technology, to assemble low-end 3.5-inch desktop drives.

This article is an abstract of news published on issue 198 on July 2004 from the former paper version of Computer Data Storage Newsletter.