The hard drive industry went through a crisis as a result of the Thailand floods that happened last year. Now, slowly but surely, the prices are normalizing.
While this was one of the main topics of discussion at the WD Annual Summit, held in Vienna, Austria, WD also touched upon various other topics.
We had an opportunity to have a healthy talk with Richard Rutledge, SVP, Marketing, Western Digital and we discussed everything from hard drives, to WD's SSD plans to Thunderbolt hype and more. Read on...
Q: Due to the Thailand floods, the prices of HDDs have gone through the roof. By when shall the pricing normalise. Also there is a fear, that the distributors are purposely keeping the prices higher, what do you have to say to that?
A: I don't think prices will ever come down to what they were. We had developed a total supply chain in and around Thailand, based totally upon cost. We had multiple sources and multiple factories but all were in the same geographic area. There are some structural costs added to our industry that will probably never go away, but in general prices responded to the floods immediately and went up, and they have been on a decline, albeit a slow decline since. I think in India prices went up above Rs. 3000 when i was there.
As for the bloated prices by the distributors is concerned, their financial results wouldn't support that.
Q: Are you planning to open plants in other areas, to reduce the dependence on one single location? You have a plant in Malaysia, and Hitachi which has been acquired by you has a presence in China.
A: We started the company in 1970 and have been in operation in Malaysia since 1972. We are the largest MNC in Malaysia and Thailand. The industry made a lot of investment in South East Asia. So it started from Singapore, then it moved north to Malaysia and then to Thailand. If you look at Thailand, there are a number of industries there such as the car industry, Nikon's camera facilities, etc. A lot of the partners who provide the components are also based in Thailand, so we have to be sensitive towards Thailand. Thanks to our acquisition of Hitachi, we already have some presence in the Phillipines. Today we have some capacity in China, outside of Shenzen, out of Hong Kong. Quite honestly, it is not really cost effective to have facilities outside Thailand, as all the partners who manufacture the components are located within a 25km radius of our facility. The entire disc drive was produced inside 25 km.
Q: I saw a WD Thunderbolt drive on display. We just want to know who is Thunderbolt targeted at, as the pricing is very high.
A: There are content creation professionals, spending their whole day developing content, developing web pages and they understand the benefit of making their life easier. But in general, the reason Thunderbolt is being developed is because in some time, data will be transitioned from going down through wires, to going through optical cables. The idea is to move from wires and electricity to optic fibre cables and light. The technology really works. The reason behind it is that all technologies from SATA to USB etc can go to a maximum of 5-6Gbits/sec, which goes through a pair of wires. The benefit to the consumer today is that it is really fast.
Q: What is Western Digital's stand on hybrid drives?
A: We are interested in hybrid drives. What you will see in an Ultrabook is an SSD, typically around 24GB along with a regular hard drive, typically 500GB and up. What will happen is your data will be cached to your SSD. So we will have an mSATA port based SSD along with a regular HDD. After that technology gets adopted in the mainstream, we can do a lot of interesting things, by bringing the SSD on the HDD. In such a scenario, the HDD will be off most of the time as all the data will go via the SSD.
Q: Is there a reason to use SLC NAND in place of MLC NAND. Why is MLC NAND not used, which can probably give you a better capacity SSD while keeping the pricing low?
A: The current products that Intel have announced are all SLC based NANDs in the hybrid drives because the computer is very data intensive. As flash tends to wear out soon, it is most appropriate today to use SLC. Yes, people are working on implementing the drives with an MLC NAND to get the pricing down.
Q: Could you elaborate on the Personal Cloud storage that WD is investing in? The WD2Go apps are free and so long as you have a WD external drive, you can access data on it using this app. Now with big players like Google coming into the picture, where do you see WD Personal cloud headed?
A: In our components business, we have marketing pitch called 'the power of choice'. Even in a 2.5-inch and 3.5-inch segment, we have varieties based on the need. We have products for laptops, desktops, enterprise products. So, in general we believe in choice. It's not clear to us that whether people are comfortable putting up all their data up in a public cloud. A company like Google is quite strong financially and may never go away, but there is a company like MegaUpload, which has been shut down by the government, thereby users lost a lot of their data. So it's pretty clear, do you have all your money in one bank or do you have some of it home? There is this whole battle of mine versus theirs. We are just giving users a choice. Plus there is no monthly fee involved.
Q: So there is no revenue model?
A: For us there is a revenue model. You buy the product, pay that one time fee and then you can use the service for free.
Q: Could you elaborate on the security measures you have taken when it comes to personal cloud storage?
A: All of our external storage products do have a security capability in them. It's up to the user again. All our products do support security features such as encryption which is very good.
Q: Could you elaborate on WDs enterprise segment and its overall contribution to your bottom-line.
A: The company started in 1970 as a semiconductor company. By the 80s we had transitioned to a controller and board company. By late 80s we transitioned to a hard drive company. So we are one of the few companies who have transitioned somewhat like a cockroach - hard to kill. So we are very much step-by-step. We come from the PC world, so that is our main segment. So the enterprise world is very far from us. Although we do have a 25 percent share in the enterprise segment, the type we are looking at is typically mirrorline or SATA or mission or business critical. It's the next tier up the enterprise, which is high speed and high performance which we recently announced, our third generation products - the S25 900GB, the 1TB Velociraptor. So we are still early considering we are third generation for an enterprise product. Typically it takes 2 or 3 generations to get more momentum.
Q: To assist you with this have you partnered with any companies globally or in India?
A: Oh yes. Enterprise products have a very extensive compatibility because there is a large number of things such as the RAID controller. For example, the Caviar brand has a very specific compatibility - it is designed for the PC. The Scorpio brand is designed for the notebook. The AV brand is designed for set-top boxes or surveillance, etc. So we have a tremendously successful partner program to test the inter-operability and compatibility on the development side.
On the sales and marketing side, we sell directly to the largest OEMs, benefit of being in the industry for a long time. We still have work to do, but we have a 24-time zone distribution channel covering many countries. So are we successful in India as we would want to be? No. What are we doing about it? We are investing, in the right people, investing in the partners, investing in the capabilities.
Q: Could you elaborate on WDs SSD plans.
A: According to our research from the 500,000 petabytes of data that was transferred last year, only 20,000 petabytes were using flash drives. That amounts to a mere 4 percent overall data transfer share. So that's an interesting statistic that flash is only 4 percent of the overall storage. The current SSD products we have under the WD brand were got from a company we acquired called Silicon Systems. They are focussed on the embedded industrial market places, which are the closest markets to the enterprise which equates to High duty cycle, high reliability and very long life cycle. And that was the strategy.
With regards to consumer market, we are very much in support of this dual hybrid drive. We have teams working on SSD products, but we won't announce products before we are shipping. Safe to say we are investing.
Q: Also has WD recently sold its external HDD division to Toshiba?
A: No. As part of the acquisition of Hitachi (HGST), various regulatory bodies around the world including the US and China, they all made a conditional approval of this acquisition if we divested some of Hitachi's 3.5-inch drive business. Toshiba has agreed to acquire those products that are not complete yet. So no WD stake was sold off.
Q: A lot of WD media players have come out in the market, so how do you see that particular segment's growth.
A: We would have told you in the past that we are only interested in the storage of your data, and that is our core business. The products you see in WDs portfolio transport data, there's powerline network products, there are products that consume your data such as the HD media players. So we are very focussed on the connected home. we aren't the only company to use that term. We think we do a pretty good job on the ease of use. The brand WD, for many people, perhaps not as much in India, but many feel that the brand gives good products, it's an easy to use service, it's got a good support. And so, we are interested in the entire eco-system at home.
I will say it is a very difficult product to offer services on, as video services differ from country to country. That is very unique for us. Most of our products, we can launch in 24 different time zones and 40 languages. Languages are not as hard as you think, but getting the content from country to country - that is very hard.
Q: With this regard, some of the WD HD media players that I have tested, in their video services, I noticed that a lot of those services such as Netflix, Pandora, radio fly etc., do not work in the Indian market. Can those be replaced by more local content? What are your thoughts on tie-ups with content providers on this front.
A: Now that's challenging. The video content market in the world, specially people who own the copyright to the video, license it on a country by country basis. So if you go back to Hollywood or Bollywood, there is a strong reason why they have a strong IP. It's a hard business for us. As for tie-ups I don't have any announcements. We have dedicated resources working specifically on content relationships country by country. But in the media player category, whether you have Apple computers or WD or any other suppliers, it is hard to build a library of content. So we have work to do there.
Q: How does WD maintain its first mover advantage. It was the first to come out with a 3TB drive with the advanced 4K format, then recently you announced a portable 2TB drive.
A: With success you are able to invest more, you are able to hire more specialised people, which allow you to do more products. We are a 42-year old company. That is a long time. This industry has seen a lot of mergers and acquisitions and fortunately we have been the people buying. We have a lot of products and dedicated teams working on them. They keep getting better at what they do.
Q: So, where are your R&D centres located? Is there a chance to get them to India?
A: The bulk of our R&D work is done out of California. As you may know, the HDD was invented in California, so that region has people with specific skill sets which are necessary. There are only a handful of cities in the world that have those particular skill sets. We have a very effective capability in Thailand, in Malaysia but for the most part the R&D is done in the US. On the HDD skill set it would be difficult to set up R&D centres in India as it requires special skills, special university courses imparting those skills. For products such as the WD HD media players, there is a scope for India thanks to its tremendous software capabilities.
For some of our products, we have people in Poland, as that particular skill set is only found in Poland. What is important to us is to get access to that skill set.