America's No. 1 financial conglomerate

Chapter 397 A Slap and a Sweet Treat

In the early summer of 1998, in a conference room at IBM headquarters in Akmon.

The solid wood table was so shiny it could reflect the tense faces of the executives sitting on either side.

Several staff members dressed in navy blue work clothes were tiptoeing and carefully hanging a giant world map on the whiteboard wall in front of them.

As Gerstner sat at the head of the long table, watching the staff bustling around, the corner of his mouth twitched involuntarily.

As the CEO who leads IBM, this technological behemoth, he has seen countless grand occasions, but he never imagined he would experience such an absurd meeting.

His gaze involuntarily swept past the executives who were whispering among themselves, finally settling on the young man at the other end of the long table.

Ernst, nowadays, is a name that almost everyone in America has heard of.

Gerstner rolled his eyes inwardly, really wanting to ask the other party, "Where do you get the confidence to come to IBM's territory and ask to acquire our hard drive business?"

Not only Gerstner, but the IBM executives present all looked as if they had swallowed a bitter pill, some even finding it hard to believe they were laughing.

When Gerstner called a meeting with them, he learned that the meeting was actually chaired by Ernst, and the purpose was to get IBM to sell its hard drive business.

After the staff hung up the map, Ernst finally stood up from his chair, and everyone's eyes were on him as he walked to the map.

"As you all know, I own a hard drive company called GenTek, and we have successfully developed a 3.5-inch hard drive." Ernst's voice was not loud, but it clearly reached everyone's ears. Many executives exchanged glances, clearly having no concept of such details as hard drive technology. It was only after one of the executives spoke that they began to talk about GenTek's technological level and market position.

"Mr. Ernst, with all due respect, while ZenTek's 3.5-inch hard drive has captured some of the consumer market, its capacity of only 2.1GB is hardly a groundbreaking product. Keep in mind that major hard drive manufacturers have already released 8.4GB drives."

"Those are high-end products, and we at IBM will be releasing 16GB hard drives this year."

"That's right." Ernst smiled, gently tapping the person who had spoken earlier, a gesture like soothing a sulking child. "You're right, IBM has indeed always been at the forefront of capacity development, but you might have forgotten that with hard drives, bigger isn't always better, just like a hamburger isn't necessarily tastier the more meat it has. Would you eat a hamburger with meat bigger than your face, but unable to bite into the lettuce and bun?"

The other person's face instantly turned a deep purplish-red, but Ernst acted as if he hadn't noticed and continued, "You should have heard of Quantum's Fireball 5th generation, right? They use UltraATA/66 interface technology, achieving a data transfer rate of 158MB/s, a rotation speed of 5400RPM, and an average seek time reduced to 9.5 milliseconds."

"What does this mean? It's like you're still waiting at a red light while driving, and you're already on a highway bridge."

"Moreover, their hard drives use a high-temperature molding process, making them much more stable than IBM's products. Unlike IBM's hard drives, they won't stop working when the temperature gets too high."

He paused, his tone almost overflowing with sarcasm: "Although the Fireball 5th generation is 15% more expensive than IBM's hard drives, its market share has increased by 20% in the past six months."

Ernst shrugged. "Clearly, consumers are willing to pay for usability."

"As for the low-price market, IBM's cost control for hard drives is absolutely terrible. Seagate and Western Digital are much more attractive in price than IBM's hard drives."

The other person opened their mouth, wanting to refute but not knowing what to say, because what Ernst said was true.

In recent months, IBM hard drive orders in the consumer market have indeed been declining, especially in the personal computer sector, where more and more manufacturers are choosing Quantum or Seagate products.

Ernst walked over to the glib executive from before, patted him hard on the shoulder, and asked, "What was IBM's market share of hard drives last year? More than one-fifth of the market, right?"

"And this year?" Ernst released his grip and began to pace slowly around the conference room, his leather shoes making a soft rustling sound on the carpet.

He walked to the whiteboard, picked up a red marker, drew a downward arrow on it, then turned around with a mocking sneer on his face. "According to the data I have, as of the first half of this year, IBM's hard drive market share has fallen to less than 15%."

"At this rate of decline, by the end of the year, it is very likely that Western Digital will overtake it and it will fall below 13%. In other words, in just one year, its market share has dropped by more than 40%, which is like an aircraft carrier running aground on a shoal in the hard drive industry."

"What?" The atmosphere in the conference room instantly became tense, and many people gasped, their faces showing disbelief.

Although everyone knew the hard drive business wasn't doing well lately, no one expected it to be this bad.

This rate of decline in market share means that IBM's influence in the hard drive industry has been severely weakened. At the current rate, IBM may even become a second-rate manufacturer next year. It's obvious to anyone that IBM's hard drive business is in trouble.

Although hard drive business is not IBM's core business, this side business is contributing significantly to revenue because the Internet industry is experiencing explosive growth and personal computer sales are increasing every year. As a core storage device, hard drive is also rapidly expanding in market size.

Ernst's attack wasn't over yet. "Do you think this is the end? If you remove the hard drive sales tied to IBM's server business, do you know what market share IBM actually has in terms of hard drives sold solely through marketing?"

Everyone held their breath, their eyes fixed on Ernst.

He extended his right hand, palm open, five fingers clearly visible. "If my data is correct, this number should be around 5%. Even if my data has errors, it definitely won't exceed 7%."

"5.5%?" someone exclaimed. "How is that possible?"

"Nothing is impossible," Ernst said with a hint of helplessness. "Because your sales team has no idea what consumers want. They're still using sales strategies from 10 years ago to sell today's products."

"They're still telling retailers that our hard drives have large capacities, but they haven't told them that IBM's hard drives have slow transfer speeds and are prone to failure."

"Do you know what 5.5% means? It means that IBM's market share among hard drive manufacturers in North America is not even in the top five."

"The current internet is mainly concentrated in North America, but that doesn't mean the internet industry hasn't emerged outside of North America. Seagate built a factory in China a long time ago, and Western Digital set up a research and development center in Europe three years ago. What is IBM doing now?"

"If the status quo is maintained, I can guarantee that IBM's failure in personal computers will be repeated in the hard drive field."

The meeting room was completely silent; everyone's face was as black as the bottom of a pot.

The personal computer business has always been a sore spot for IBM. After IBM launched its personal computer, the open architecture led to the rise of compatible computer manufacturers, and IBM eventually lost its dominance in the personal computer market.

By the time they realized it, it was too late; Microsoft, along with other major manufacturers, had turned against IBM.

Now that Ernst is bringing this up, it's like rubbing salt into everyone's wounds.

Gerstner's face turned extremely pale, and he felt his blood pressure rising continuously.

He knew Ernst was telling the truth, but as the CEO of IBM, being criticized by an outsider in his own conference room was unbearable for him.

With a stern face, he said, "Ernst, if this is your reason for trying to persuade IBM to sell its hard drive business, I think you're overthinking it."

Ernst, however, was not in a hurry at all. He slowly walked back to his seat, picked up the coffee on the table, took a sip, and even smacked his lips, as if savoring the aroma of the coffee.

Ignoring the angry glares from the surrounding executives and the cold expression on Gerstner's face, he put down his coffee cup and said, "I don't have time to meddle in IBM's business. I'm just objectively describing the current state of IBM's hard drive business."

2

He tilted his head, a smirk playing on his lips, like a child who had just pulled off a prank. "Of course, you can also think of it as haggling."

"Too arrogant!" someone muttered under their breath, a sentiment shared by many others present.

It's like IBM begged you to buy it, not that you came to them wanting to acquire it.

Ernst completely ignored what these people thought, took out a stack of red white magnets, walked to the map, and began to quickly mark points on it.

New York, Los Angeles, London, Tokyo, Singapore, Shanghai, Frankfurt, Sydney — in less than a minute, the entire world map was covered with red magnets, densely packed together.

The executives frowned, wondering what trick he was up to this time.

Someone couldn't help but ask, "Mr. Ernst, are you marking tourist attractions?"

Ernst ignored his teasing and pointed to the red markers on the map, saying, "These mark 21 cities in eight countries. Over the next five years, I will build more than 30 data centers in these 21 cities."

39

It sounded impressive, but IBM's top executives remained unmoved.

Ernst calmly sat back down, leaning slightly forward, and said to the crowd, "The average storage capacity of each data center will exceed 50 TB."

"50 TB?"

The meeting room fell silent instantly. After a moment, Gerstner abruptly sat bolt upright in his chair, his tone accusatory and skeptical, "Are you kidding me? Do you know what 50 TB means?"

Everyone stared wide-eyed, their disbelief far outweighing their shock.

The secretary sitting next to Gerstner was typing furiously on the computer, her small hands almost leaving afterimages.

Ernst looked at her and couldn't help but laugh. "No need to calculate, I can just tell you the data."

「按照现在市面上最大的8.4GB硬碟来算，50万TB需要大约6000万块硬碟。如果按照现在每块硬碟110美元的市场价来算，光是硬碟採购成本就需要66亿美元。」

Ignoring the crowd's shock, he continued, "However, as you all know, bulk purchases definitely come with discounts, and with technological advancements, the cost of hard drives will certainly decrease in the next few years."

Ernst looked around and said, "My estimate is that the total procurement cost of hard drives will drop to between $40 billion and $45 billion."

$40 billion—that number alone made everyone's breathing quicken.

Because Ernst said that building more than thirty such data centers would require an investment of more than $1200 billion.

Add in server, network equipment, venue rental, and labor costs, and the total investment could easily exceed two hundred billion US dollars.

are you crazy?

Could it be true?

An investment of $200 billion over five years is something that has never happened before in the technology industry.

But he's Ernst, a guy who can't be figured out by common sense.