Hewlett-Packard: the Flight of the Kittyhawk

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The Flight of the Kittyhawk (A)

The first hard drive, a magnetic information storage and retrieval device for computers and other electronic products, was developed by IBM engineers in 1956 in San Jose, California. This hard drive was the size of two side by side refrigerators and could store 5 MB of information. Incredible technological progress ensued, and by the early 1990’s, disk drives had decreased from their original bulky configuration to 2.5 square inches in diameter and had a four-fold increase in their data capacity to 20MB. The disk drive business had grown into a multi-billion dollar industry marked by frequent innovation, rapid growth and intense competition amongst a few select firms such as IBM, Seagate, Conner, Quantum, and Western Digital.

These technology manufacturers competed in the hard drive market by relentlessly pursuing two design improvements: reduction in physical size and increase of data storage capacity. These advances were required by their customers, who were in an analogous race to bring smaller, cheaper, and higher utility electronics to market.

At this time Hewlett-Packard’s (HP) Disk Memory Division (DMD) held a small but profitable piece of the market with its high-performance, high-capacity 5.25- and 3.5-inch disk-drives. Wanting DMD to “become the next printer business for HP”, the group’s management seized the opportunity to grow by attempting to leapfrog the competition. In June 1992, twelve months after assigning the task to an autonomous project group, HP introduced the world’s smallest hard drive. Named Kittyhawk, the 1.3-inch diameter drive had 20MG of storage, the durability to withstand a 3’ fall, and low power consumption. These advantages made the drive seemingly ideal for applications in the burgeoning mobile computing market as well as for increasingly thinner laptops, gaming devices and other new products. The HP project team established productivity and financial goals they deemed reasonable, but by mid 1994, device sales had failed to meet its targets. The team, and its project leader Rick Seymour, met to discuss and determine the future of the project and its technologically remarkable tiny hard drive.

Question 1. How successful is HP’s disk drive business (DMD) at the start of the case (1990-1991)? How important is the disc drive business to HP? Is it getting more important or less important?

The DMD business is not a successful unit in the eyes of Hewlett Packard, which prides itself on being the market leader for every product it enters. The revenue for this department, at the time of the case had been declining year over year, from a high of $533 million in 1989 to $280 million. The business is not important to HP revenue-wise, as it is a niche player in a very crowded field. On the other hand, the unit does allow for some level of halo effect as the leader in high-capacity, fast access drives which are used for high end engineering workstations and network servers. The unit provided high profits for the division.

The division is getting more important, at least from the case readings, as the company wishes to gain traction in the Hard Drive market, where competitors have 10x more revenue. HP was looking at the unit’s profitability and technical expertise that would allow it to compete with Seagate and IBM, wondering why “don’t we have 20% market share.” The organization believed in innovation fueling growth, as it was able to do with RISC based processors in the UNIX market while other companies preferred the status quo. Despite overall rising corporate and DMD revenues, DMD represented a decreasing percentage of HP sales (see linear trend line). [please note that DMD and corporate sales are scaled logarithmically , and the % DMD/Corporate is depicted on its own linear scale]

Question 2. The Kittyhawk drive turned out to be a commercial failure. Never-the-less, HP did many things...
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