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IBM Tosses Business Western Digital's Way

October 29, 1985|CARLA LAZZARESCHI | Times Staff Writer

The way the folks at Western Digital remember it, the company was cruising along selling computer parts to computer makers when a fairly minor decision by the marketing fellows back at IBM produced an opportunity that was almost too good to be true.

It seems IBM was looking last year for a way to reduce the cost of its XT model desk-top computer. The company finally settled on eliminating the hard disk drive, a piece of equipment that gives the machine a huge amount of additional information storage capacity.

The move, it was figured, would cut the machine's sales price by about $1,300 and make it far more attractive to buyers. And if customers really wanted a hard disk drive, the reasoning went, they could buy the mechanism elsewhere and have it installed, at little more than half the cost IBM had been charging.

On the face of it, Western Digital, whose information storage product line includes equipment to regulate disk drives, seems an unlikely beneficiary of the move. The company wasn't selling its products to IBM for the XT and it didn't have an immediate way of filling the void IBM had created.

However, when retailers of the XT machine started to get calls from customers seeking the missing equipment, they asked Western Digital to start providing the retail market with its hard disk controller boards, a five-inch-by-eight-inch plastic board covered with silicon chips and other electronic components.

The company did, and in January was born a business segment that currently generates revenues at the rate of $46 million a year and is expected to grow from its present line of two controller boards into a full-blown product line and become one of Western Digital's brightest stars.

The move, which has not required an extensive investment in new equipment, personnel or technology at Western Digital, comes at a time when computer industry businesses are looking for new ways to generate sales and profits from their existing operations.

With sales stagnant and profits often sagging throughout the industry, Western Digital has proved a rare exception.

The new retail products, which generated a total of $17 million in sales last year, are one of the major reasons the company's revenues jumped 33% to a record $177 million in the fiscal year that ended June 30.

In the first quarter of fiscal 1986, retail sales contributed nearly $12 million to the company's $63 million in revenues.

"The best thing about all this is that while other companies fight to get into retail distribution, we were invited in," says Bruce Friesen, marketing director for the company's newly created peripheral products division. "We were standing at the right bus stop when the bus went by."

No Formal Announcements

Still, until last week, Western Digital had not formally announced its retail product line for IBM desk-top computers or its new, 25-employee retail division. The big announcements, including the introduction of three new data storage products, are scheduled for the computer industry's major trade show next month in Las Vegas. But news of the changes already has been slipping out.

"They entered the market cautiously and with trepidation initially," said John Ball, a high-technology analyst with Paine Webber Mitchell Hutchins in New York. "They probably didn't anticipate how rapidly they would grow or how large the demand is for products for that IBM machine."

In general, analysts have enthusiastically applauded the company's move into the retail sales.

Although the market is loaded with as many as two dozen other companies fighting for a share of the computer accessory--or add-on sales--market, analysts say Western Digital is well positioned to take a big slice of the highly fragmented business--in which no company currently seems to have more than 10% of the sales.

An Extra Push

Western Digital executives are counting on the company's experience in information storage products to give it an extra push in its new market.

"Basically we're taking the products that we're already selling to computer makers, reworking them a bit, packaging them, adding some user manuals and selling them through retail shops," Friesen said.

He declined to name the company's retail customers, saying only that sales were made to nearly 70 different retailers, including Business Land, the large computer chain store that made the initial approach to Western Digital for retail products.

The three new products scheduled for formal introduction next month already have generated rave reviews from the handful of analysts to see them.

Earning the highest marks is the FileCard, a product that combines a hard disk drive, its controlling electronics and space to add even more information storage on a single board that slips into the back of an IBM personal computer.

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