Seagate's Watkins Sounds Off

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Here in the U.S., a lot of people would argue that hard drives are one of the commodity components in a computer. But I'd imagine that you'd argue differently.
It's a complicated technology. There's chips, there's media, there's software code. In a world where storage is increasingly important, all your content and information is being stored there. And to own that technology I think is of fundamental importance to the U.S. But storage has never been well respected as an industry. When Seagate first launched, it couldn't get any venture capital funding. This was about 1980, and the Valley was funding everything, but it wouldn't fund a storage company. The first drive from Seagate was 5 megabytes. And there were these letters from all these VCs saying that no one in their right mind would ever need 5MB of storage. And that was 1980, and even now some people can't see why they would ever need 100 gigabytes. But people are sucking up lots of storage.

When we talked a year ago (BusinessWeek.com, 8/11/06), the industry was making noise about replacing the spinning platters in hard drives with flash memory—chips that store data without moving parts. Now there's more interest in combining the two into hybrid drives. Where does Seagate fit into this?
Basically, if you start using flash as a cache, you can get faster boot-up time. You can really reduce the power consumption… [But with traditional storage], you don't have the issues that flash does, which is a write-reliability issue and a cost issue. It's just a very expensive means of storage. But combining them, you get the best of both worlds.

What do PC makers say about that?
They kind of like that solution. We think longer term that people won't be willing to pay a lot for that. Four or five years out, we think there will be things we can do to really get the power consumption down. And by then it won't be about notebooks or desktops, but it will be about the Internet. You think about the Yahoo!s (YHOO) and Microsofts (MSFT) and Googles (GOOG): They're buying tons of drives, the highest capacity they can get their hands on, and just stringing them together in warehouses full of storage. The power in those places gets sucked up big time, and we actually think we can over time make major reductions in power usage. And that's an opportunity that people will pay for in that business space.

Would you ever consider buying a flash memory company?
We think about flash the same way we do about hard-drive heads. We think our real value proposition is to design the system. It's the system that makes it all work.… Would we go buy a semiconductor company? I doubt it.… Would we make investments? Yeah. Would we do joint venture in a chip fab? Yeah. The important thing is getting low-cost flash. It's not going to be a big deal for a few years yet, but now is the time to start laying that groundwork.

Do you sell more storage in consumer or business computers?
We sell more storage in the home than we do in businesses. It's all about the digital home these days. That was a startling fact to us. There's so much discrete storage around the house. There's many PCs, one or two DVRs. And we think that eventually that will all be consolidated. In my home, I have 6 terabytes storing all my music and films and so on. It's an expensive system, but systems like it are going to get cheaper and cheaper as time goes on. There's obviously a big opportunity for something like this. But then there's also a huge opportunity for all this infrastructure to support it. There's all these devices [in the home], but then there's a big massive build-out of enterprise infrastructure to deliver all that content [to consumer devices], and that's being driven by all the consumer storage, and that's the part that no one really thinks about.