Issues in the HDD industry

Ø The world market for HDDs today is almost $26 billion. By any standard, this is a large and important sector of the electronics industry. This industry also provides an excellent example of the increasingly complex competitive requirements that result from the globalization of competition

Ø The competitive requirements in the HDD industry are not much different from the rest of the electronics industry: intense price competition needs to be combined with product differentiation, while continuous price wars have drastically reduced profit margins.

Ø A hallmark of this industry is the incredible demanding requirements of its supply chain logistics. HDD assembly is heavily dependant on a large number of high precision components and their sources are spread over different continents.

Delay in supply or poor quality can affect the production. Limited availability of a few key components has constrained the company's growth. Maxtor which used to be the country's largest supplier of HDD had suffered because of its excessive reliance on outsourcing.

Ø The industry also faces high entry barriers. The face entry barriers like barriers related to intangible investments, barriers to entry and exit of supplier networks (subcontracting and OEM arrangements), and barriers related to sales, marketing and after sales services.

Ø Economies of scale, volatile demand patterns, competitive pricing are prevalent in this industry.

Ø International production, as in the case of Maxtor, has magnified the impact of unexpected disruptions in its value chain, reduced the operational flexibility.

Ø This industry also suffers from partial globalization, affiliates, joint ventures, and suppliers scattered across the globe that co-exist without much interaction.

Ø Maxtor also faces certain tax risks. Due to the company's operational losses, favorable taxes in Singapore, the company's tax expenses have been a small percent of its expenses. The company's U.S and foreign tax liability will increase once the company starts making profits. If Maxtor fails or is unable to meet the compliance with the required condition, it would loss its tax status will have an adverse effect on the company's business and financial conditions.

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