Mass Storage: Al Shugart
Driving through stormy weather

If you want to know how rocky the disk-drive market has been in 1998, just ask Al Shugart, a man who's been at the forefront of the disk-drive industry since helping IBM develop the world's first magnetic drive in the 1950s. This year began with drive makers like Shugart's Seagate Technology losing money and slashing costs. For Shugart, it's ending with an attempt to start fresh after losing his job.

The man so well-known in the drive industry that he's normally referred to simply as "Al" was among many in that sector who got the ax in 1998. But though he lost his job, Shugart doesn't feel much kinship with others who were laid off.

"I was fired," said Shugart, who founded Seagate in 1979. "A lot of people got laid off, but there's no similarity at all. [Layoffs] aren't a big surprise, the business went downhill."

The fact that Shugart is a millionaire who already owns several other businesses and is now launching what he calls a "startup city" for entrepreneurs sets him apart from the typical engineer. It also gives his views of the industry a bit more weight. At this point, those views aren't upbeat.

Shugart doesn't think he'll be the last casualty of the oversupply of disk drives. Market growth has flattened somewhat, and the four U.S. players that dominate the industry are being challenged by a handful of Asian companies, which have added capacity to grow. At the same time, IBM, Seagate, Quantum and Western Digital have had to keep their factories fresh in order to stay abreast in an industry that is aggressive on two fronts: boosting storage capacity by 60 percent and cutting prices at double-digit rates every year.

"I've said all along that there will be a real shakeout, a consolidation in the storage industry." said Shugart. "The winners will be well-financed companies that own technology and have worldwide capacity."

That shakeout could well alter a basic tenet of the drive industry, which has always been dominated by U.S. suppliers. Some of the U.S. companies don't fit Shugart's view of the successful drive company, while Far Eastern suppliers do.

"In storage, IBM and Seagate have the technology and worldwide capacity," Shugart said. "The rest who do are in Japan. I think the Japanese have all the ingredients, it's just a question of execution."

Looking beyond the drive industry, Shugart predicts that other U.S. companies may well be affected by financial problems that are plaguing many of the world's leading countries. "The economic situation in the United States is not as good as the government says. Worldwide, the only place with any hope that I've seen is Western Europe," Shugart said.

The price cutting that mutilated profits at the drive makers will probably continue. Demand isn't as high as it used to be, and the push from system houses for cheaper drives is getting more intense as PC prices decline.

In part because he thinks the electronics industry will be fairly volatile in the short term, Shugart has set up a new business that caters to startups. One of the main goals of Al Shugart International (Soquel, Calif.) is to assist entrepreneurial companies with consultation and/or investment.

"We are in the process of getting a venture-capital fund organized," Shugart said. "We already have the expertise to help early-stage startups in finance, human resources and other things. We are going to be a full-service company, a startup city.

"We aren't staying totally with what people in the electronics industry refer to as technology," Shugart added. "I now own 30 percent of a company that makes non-toxic bug killers. We are a technology fund, but there are opportunities in a broad range of technologies, not just electronics. Starting up this company is very exciting, I've never worked so hard and had so much fun at it in my life."

Zoo keeper and dog booster
That's saying a lot for a man who has spent 47 years at the forefront of the storage industry and used the title "zoo keeper" on business cards. After 18 years at IBM, he headed the product-development group at Memorex, a major storage force at the time. He left to start Shugart Associates with Finis Conner in 1973 and helped pioneer the 5 1/4-inch form factor. Later, at Seagate, he acquired two of the largest drive companies, Control Data Corp. and Conner Peripherals. The latter was particularly satisfying, since Conner and Shugart had an unfriendly split.

Given that he's got millions of dollars, is on the boards of seven companies and is both well-known and well-liked, Shugart has the clout to set up his own political action group. Called Friends of Ernest, it's named after his dog, who attempted to run for Congress in 1996 but found it difficult to get on the ballot, even though Shugart funded a campaign replete with television ads in Ernest's behalf.

The current focus for the Friends of Ernest PAC is to get an initiative on the March 2000 California primary ballot that will put "None of the Above" on statewide and presidential ballots. In Shugart's view, the prospect of voting for no one may not solve the economic crunch, but it may increase voter turnout.

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