Hard Times for Disk Drives

Financial results were dire in 1999. The four largest independent firms-- Maxtor, Quantum, Seagate, and Western Digital--lost a total of $260 million in the third quarter, improving to losses of $41 million in the fourth quarter.

The disk drive industry is strongly tied to the ups and downs of the PC market, which has also suffered severe price erosions. While PC manufacturers remain healthy and optimistic, disk drive manufacturers haven't learned how to handle falling prices, says Noboru Kubokawa, chief analyst at Japan's Institute of Information Technology, here at the Diskcon 2000 conference.

Hurting Themselves?

Other analysts suggest disk drive manufacturers contributed to their own woes, partly by competing in a no-win arena that led to lower prices all around.

"I was very surprised to see Maxtor and Quantum get into a contest on price last year," says John Dean, managing director at Salomon Smith Barney.

Many companies made bad choices, prompting unnecessary price erosion, says John Monroe, chief analyst for Dataquest's Rigid Disk Drives Worldwide program.

Another problem: a phenomenon known as over-technology, Kubokawa says.

"It means delivering technology at a higher level than users demand," Kubokawa says. Disk drive manufacturers consistently deliver over-technology, he adds.

In 1997, the average number of separate disk platters per drive hit an industry high of 3.1. This keeps drive prices high, masking a precipitous fall in the price per platter. The result? A decline in unit sales and a continuing erosion of profit margins.

The Silver Lining

Since then, although average storage capacity per drive has grown by 60 percent per year, the platter/drive ratio has fallen to 2.4. Manufacturers are beginning to realize the problems over-technology poses, Kubokawa notes.

Although manufacturers can't raise prices for new generations of disk drives, Kubokawa is optimistic.

"Demand is healthy and the manufacturers are moving towards being profitable even with the price erosion," he says. "The new applications with their extra demand will come in a few more years, and the important thing for the disk drive manufacturers is to keep profitable."

Other analysts agree that improvement may be ahead.

Controlling costs and finding new markets help, Dean believes. The new breed of consumer devices, including personal video recorders that add storage to set-top TV receiver boxes, are a new market. So are MP3 audio players, MP3 storage consoles, digital cameras, Internet appliances, and mobile phones, according to John Kim, vice president of data storage market analyst Trend Focus.

This market explosion is still years away, Kim says.

"The impact of emerging applications will be felt in late 2000, and there will be a huge impact in 2001 to 2003," Kim says. "These new markets, plus the general over-20GB drives will account for more than 50 percent of the disk drive market by 2003. This is the savior the industry has been looking for."

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David Legard

PC World
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