(FORTUNE Magazine) – Finis Conner is renowned for many things in Silicon Valley, but frugality isn't one of them. The headquarters of Conner Peripherals, the disk-drive company he founded in 1986, featured an art collection to rival the Tate Gallery's, plus a sumptuous marble entryway that employees dubbed "the Taj Mahal." His personal overhead included a classic-car collection, a twin-engine Cessna, and a Pebble Beach mansion, where until recently he was serving out a two-year exile from the industry (a condition of his company's 1996 sale to Seagate Technology).

Now his manacles are off, and Conner is back with a new strategy: cheapness.

The nattily attired entrepreneur is serving notice that his new drivemaker, Conner Technology, in San Jose, will rewrite the standard for bare-bones production. "We will be, without a doubt, the lowest-cost company in the business," says Conner, 55.

His former associates are perplexed. "The initial response from everyone, including myself, was 'You're nuts,'" says John Squires, the engineer who helped him found Conner Peripherals. Not that he considers Finis (rhymes with "sinus") incapable of parsimony. It's just that the storage business is in the throes of a punishing price war that has driven prices to unheard-of lows. "It's not an industry populated by companies with a lot of fat," warns Bill Almon, Conner's former No. 2 man. "You're dealing with survivors." Wouldn't Conner prefer marlin fishing in Mexico from his 118-foot yacht? No, he insists. "This is a wonderful time to be starting a company."

That may not be as nutty as it sounds. With the advent of sub-$1,000 desktop computers, PC makers are clamoring for ultracheap drives to outfit them. Established players like Seagate are angling to fill the fast-growing demand, but their cost structure isn't set up to go after this market, says Bear Stearns analyst Andy Neff. That's because the storage business has traditionally required big R&D staffs and vertical integration. Now it's changing. "We're in a commodity business," says Conner, adding, "a few years ago I would have bristled at that."

His new, low-budget recipe goes like this: Incorporate in Ireland for a sweetheart tax rate of 10%. Outsource assembly to a supplier in Shenzhen, China. Scrimp on R&D. Use reliable if slightly passe technology to reduce costly revisions during manufacturing. Oh, and sorry, folks, no Taj Mahal.

The result, company executives claim, will be drives roughly 5% cheaper than rivals' cheapest models--and instant profitability. "This is the business model of the future," declares Conner, who projects sales of eight million drives next year. "We're going to grow, it appears to us, at a faster rate than Conner Peripherals did."

Conner Peripherals, by the way, hit the $1 billion sales mark faster (four years) than any U.S. manufacturing company in history. If Conner, who also helped launch Seagate and floppy-disk pioneer Shugart Associates, is to spin such magic again, he'll have to coordinate a far-flung supply chain flawlessly and endure jabs from some awfully sharp elbows. "I just feel bad for him," says Seagate CEO Stephen Luczo, whose company employs 85,000 people to Conner's current 85. "If you want to play with us in the cost arena, you're going to die."

Maybe so, but do take note: Conner isn't commuting to work via private jet anymore. He's driving his BMW. Now, that's cheap.

--Jerry Useem