HDS Blames Economy, IBM for 'Tough Year'

Regional economic woes and stiff competition from IBM Corp. were the main reasons for the recent worldwide restructuring of operations at U.S.-based Hitachi Data Systems Corp., according to top executives at HDS.

After announcing last month its intention to lay off 400 out of 2,750 employees worldwide, HDS sacked 43 employees at its Australian-based Asia-Pacific headquarters, and recently the Hong Kong office experienced a few layoffs of its own.

"Ninety-eight is a tough year for multiple reasons," said Yoshihiro Koshimizu, managing director and chairman of the HDS executive committee. The economy, particularly in Asia, has not been supportive, Koshimizu said.

The high percentage of layoffs at the Australian Asia-Pacific headquarters were attributed to a change in the corporate reporting structure whereby regional offices will report directly to the head office, said Cliff Stratton, executive vice president of operations at HDS. Meanwhile, Hong Kong was less affected by the restructuring, according to Greg Cornfield, chief executive of Asia at HDS. "We lost two people in Hong Kong and these were primarily positions that were redundant positions," Cornfield said.

Currently, HDS has 17 offices across 11 countries in the Pacific Rim.

"The rationale (behind the restructuring) is to make our organization more simple, slim and make it more adequate for quick decisions," Koshimizu said.

Stiff Competition

Along with facing restructuring, the company's flagship high-end Skyline series processor has been facing stiff competition from IBM's '98 version of the CMOS mainframes -- causing HDS to rethink its product and services offerings.

This year, IBM introduced the '98 version of the CMOS processors, and that -- combined with IBM's software and services offerings -- enhanced their product "significantly," Koshimizu explained.

"It's tough," when IBM has more than 70 percent of the market share and can basically set the market price, Stratton said. The unit sales for MIPS are going up, but HDS' revenues are going down, he said.

As a result, year-end revenues are expected to be "a little short" of 1997's US$2 million, Koshimizu said. Last year, HDS had 25 percent of the market share in the processor arena but that has been pared down to approximately 20 percent now, Koshimizu added.

At present, almost 100 percent of HDS' business is devoted to the high-end S/390 market, "but that is what we're going to change," Stratton said. The company recently began offering storage products that run on Unix and NT operating systems and is planning to roll out its Unix and NT servers next May, he said. In addition, HDS is looking to enhance its professional services offering in the open systems arena, Koshimizu said.

Privately-held HDS is 84 percent-owned by Japan-based Hitachi Ltd., while U.S.-based Electronic Data Systems Corp. (EDS) has a 16 percent stake.