Melissa Bockhold Heather Coddington - Franklin College

In 2000, Seagate was leading the worldwide disk drive market with a 21% share
of the total market. Taking all of this into consideration, we conclude that Seagate’s
vertical integration is not a bad strategy. Seagate’s success shows that controlling both
supply and research and development trumps the importance of pricing competitively in
the long run, since Seagate has proven to have the ability to ride economic downturns.
The disk drive industry is described as extremely volatile. During slowdowns,
companies can incur losses due to excess capacity and inventory. When a company has
excess inventory, their main objective is sell at a discount and cut their losses. Seagate
found a way to weather most of these downturns. The secret to their success lies in their
product mix. Seagate sells its disk drives not only to the high-end market, but to the low-
end market as well. Because of this mix, Seagate has earned a reputation of an efficient,
low-cost producer. Selling to the lower markets allows Seagate to achieve economies of
scale which has led to lower costs.
The only downturn Seagate has not able to fend off occurred in 1996 and early
1997. In response, the company decided to restructure. Seagate closed manufacturing
operations, left the mobile disk drive segment, stopped several product lines, and cut back
spending on new production facilities. The other major change from the 1996-97
downturn was the removal and replacement of Alan Shugart, Seagate’s co-founder and
CEO, with Stephen Luczo (Andrade 5).
Luczo decided to diversify away from traditional segments and to move into
faster-growing, higher-margin businesses. He also wanted to increase investment in
technology. In order to achieve these expansions, Seagate needed to make significant
capital investments (Andrade 6). Luczo decided the best way to accomplish these goals
13