CRN Interview: Paul Tufano, Maxtor

Fresh on the heels of Maxtor, Seagate and Western Digital adopting tougher reporting policies for distributors, Maxtor CEO Paul Tufano sat down with Editor in Chief Michael Vizard and Senior Editor Edward F. Moltzen during the recent International Consumer Electronics Show in Las Vegas.

CRN: You recently took some action to clamp down on gray-market activity, made clear in a lengthy note to distributors. Can you explain why you are taking these actions?

Tufano: At the end of the day, you want whoever buys [your] product to have full value. If you look at some of the issues that we're trying to address and the compliance we're advocating, it's really to help those end users. I'll give you an example: If a distributor %85 sells in a geography where he's not authorized and we're trying to enforce the warranty %85 if the consumer doesn't know that, he's going to be affected negatively.

CRN: How did the gray-market activity get so out of hand that you had to do this? How did disparate pricing and price protection come into play?

Tufano: It has to do with the fragmentary nature of the marketplace. It's the result of what I think is a good thing, which is the globalization of it. We're a global marketplace. Obviously, there are opportunities because of price differences in geographies %85 to arbitrage. The industry has a history of price protection. Given that, because of price differences in geographies, there's an opportunity to arbitrage. This is part of how the markets operate,nothing you can do about it. We have to put practices in place to help the market operate more smoothly.

CRN: Have you reached a balanced inventory with your distributors?

Tufano: If you only sell in what was sold out, that would be the case [that

we do have a balanced inventory]. That's why we're advocating [that] "sell-in, sell-out" [reporting] become part of best practices.

CRN: This has been going on for 20 years or more. Why are you doing this today?

Tufano: I think it's a function of the evolution of the business. %85 It's only the last few years we're seeing regional brands equal tier-one brands. White-box or regional manufacturers now are 48 percent of the market. The white-box brands are beginning to grow in geographies like Russia, China and parts of Eastern Europe, parts of Latin America.

CRN: And they're trading on price differential?

Tufano: Exactly. The second thing, quite frankly, that's a different factor is we've never become a truly global enterprise. Today, data is moving globally. Today, because of the Internet and digital information, price dislocation is instantaneously communicated.

CRN: What about collaboration between Maxtor, Western Digital and Seagate? Is it something you thought you'd ever see in your lifetime?

Tufano: In terms of the three of us, we have not said [anything], collectively, to a degree. If you look at our industry, the hard-drive industry has the opportunity to see substantial growth,growth in our core markets and growth in new and emerging markets. We, as an industry, have an opportunity to see valuation because of profit. We are all acting much more professionally with regard to value creation for shareholders, stability, supply and demand balances.

CRN: What's your R&D strategy going forward? Will there be acquisitions? Will you focus on what some of your competitors have been bringing to market?

Tufano: Our investment in R&D is pretty robust. What's important is how you invest. The future for the hard-drive industry is going to be about the ability to use building blocks of technology and to create products that meet almost mass customization. We've invested heavily in the building blocks of technology. We will continue to be very measured in terms of our approach in entering markets based on form factor. %85 I'm convinced our ability to move into 2-[inch] or 2.5-[inch drives] won't be impeded by spending or technology.

We've been working on enabling 2.5-inch drives for some time. Shock-robustness is a big part of that. Maxtor has probably shipped more load-unload drives equal to Hitachi, or more than anyone else. I think we've shipped over 50 million drives already. We've been very much focused on enclosure design.