The Problem In late 2002, executives at Apple (NASDAQ:AAPL) called Cornice to express interest in using the start-up's tiny, high-capacity hard drives in the iPod Mini. It seemed like the opportunity of a lifetime, but there was one big hitch: Apple insisted upon exclusivity, and CEO Kevin Magenis was reluctant to stop working with two other makers of MP3 players, Thomson/RCA and Rio. What's more, Magenis was convinced that the burgeoning cell phone market was Cornice's Holy Grail, not MP3 players. So when Apple refused to budge on its exclusivity demands, Magenis passed on the offer.

What the Experts Said The experts agreed that focusing on the cell phones was the right decision. "Cornice is in a very strong leadership position to be a provider to cell phone makers," said Tim Bajarin, principal analyst at Creative Strategies. Still, David Reinsel, director of storage research at IDC, wasn't convinced that there would be demand for "hundreds of millions" of cell phones with hard drives.

What's Happened Since The decision to stick with phones "worked exceptionally in our favor," says Magenis, who now serves as Cornice's chief strategy officer. If Cornice had plowed its resources into the iPod, he says, the company would have taken a "big financial hit" when Apple discontinued the Mini in 2005 and began using flash technology in the iPod nano. Cornice now supplies hard drives used in Samsung smart phones and recently introduced a line of ultra-thin Dragon hard drives for cell phones, personal media players, MP3 players, digital video cameras, and USB storage devices.

What's Next Cornice is focusing on creating smaller, more powerful hard drives. It is working with Fujitsu to develop a 1.8-inch drive for use in camcorders, notebooks, and other devices. Magenis sees an IPO down the road. And he still dreams of working with Apple one day. "Apple would be a great customer," he says.