Melissa Bockhold Heather Coddington - Franklin College

inventories of disk drive components since they do not have to worry about suppliers
meeting their demands (Andrade 4).
Although Seagate’s reasoning behind vertical integration is sound, their ideas are
not supported by many. Vertical integration tends to have substantially higher fixed
costs. While these high costs can be sustained, it can hurt a company in an economic
downturn. Most companies do not control manufacturing. Instead, they outsource the
production of computer hardware to specialized contract equipment manufacturers
(Andrade 5). The case states, and we agree, that by outsourcing the manufacturing
process to a few businesses, those entities could obtain economies of scale, resulting in a
lower cost for the hard disk drive industry. Since pricing is a major factor in competition
in the disk drive industry, being able to produce at a lower cost could give a company an
advantage over the competition.
Determining whether or not vertical integration is optimal is a difficult decision.
There are many factors to consider in the disk drive industry. We believe that each
company needs to look at what is most important to them. Do they wish to have the
absolute lowest costs, or do they prefer to have control over their product in order to
maintain high quality standards and appease their buyers? Control is Seagate’s primary
concern. While vertical integration may be frowned upon by many industry analysts,
Seagate was the only company that maintained profitability during the economic
downturns of 1992 and 1999 (Andrade 5). However, since pricing is such an important
factor in this industry saturated by competition, incurring high fixed costs could paralyze
Seagate if other companies are able to undersell them.
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