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Executive Summary | Table of Contents | ORDER

Market Drivers

A majority of the worlds data and information is still in paper form. This vast amount of non-magnetic data provides an extremely large window of opportunity for the hard disk industry. Demand for computer storage is being driven not only by the conversion of "paper" data to electronic data, but also by new data that is being created as a result of new technologies such as the Internet, enterprise and server demands, and an increase in the demand for personal PCs as well as notebook drives. Also, high-power and storage-heavy applications today demand additional storage space. According to Dataquest (based on capacity surveys and forecasts of the number of megabytes per drive and the number of drives shipped), the total storage market could grow to support 5.6 million Terabytes of primary hard drive storage in 2002, a staggering figure.

The key factors driving down the cost of disk drives are production volume and GB/disk platter. In recent years, technological leaps and bounds have been made in improving areal density. Historically, the areal density (Gbits/in²) has increased at a rate of about 60% yearly. This increase in areal density ratios has resulted in an industry where fewer components are needed to manufacture a high-capacity drive. This has caused disk drive prices to drop as capacities become greater and greater.

In addition to the traditional applications of data storage for personal computing and servers, a new market has emerged for consumer electronics. New appliances such as digital audio and video equipment are utilizing storage capabilities and are opening a new field in hard storage. Several companies including Quantum, Panasonic, Seagate, and Western Digital are participating in this new trend.

Market and Product Requirements

To obtain better competition, HDD vendors are lowering price of disk drives in exchange for a decrease in warranty period. In order to better supply customers, vendors have employed the usage of JIT (Just In Time) warehouses to distribute their products. A main JIT center is located in Dallas, Texas. However, with this system of storage comes a charge of storage and handling.

Pricing of Disk Storage

Pricing of storage devices is divided up into three main categories including mobile (notebook/laptop computers), desktop, and server/enterprise devices. Currently, Hitachi offers the lowest OEM price per drive with IBM maintaining a solid hold in the technology sector. Desktop drives include 5400-RPM IDE drives and 7200-RPM IDE drives. In the future, most desktop systems will migrate to the faster, 7200-RPM, drives. Current price leaders are Seagate and Quantum offering a good balance of quality and pricing. The final section is the server and enterprise drives. These drives are mainly for high-performance systems meant to handle a large load of traffic and access. They feature rotational speeds of 7200 RPM to 10,000 RPM. New fiber-channel technologies will be the next area of competition for the enterprise market. Popular capacities for enterprise drives include 18 GB and 36 GB formats.

Market Forecast

Demand for PC OEMs will increase as time passes, and this will become ever important in the disk drive market. Disk drive companies must excel in quality, technology, and time to market as well as remain competitive in order to remain standing in the market. A major contributing factor towards lowering hard drive factory cost is the requirement of fewer components to build disk drive units of high capacity.

Major Suppliers and Strategies

The PC market dynamics changed in 1998, we saw the larger suppliers gaining share (top five control 42% of the market), with each focusing on supply chain management and integrating elements of a direct model. We saw some major market share shifts over the course of the year whereby IBM, Maxtor, and Fujitsu took share from Seagate, Quantum, and Western Digital, leveling the playing field somewhat. The 3-inch drive efforts stalled and the 5.25-inch drive designs are generally moving toward end of life.
The demand for desktop PCs, and hence, the demand for desktop disk drives, continues to grow fueled by higher-performance, higher-capacity systems despite seasonal volatility and inventory patterns. We expect that the increasing bandwidth that is being built into the current network infrastructure will ignite the proliferation of applications that are ideally suited for hard disk drive storage solutions.

Channels of Distribution

The distribution industry is going through a fundamental shift from fulfillment-heavy to service and support-heavy focus. In light of competitive threats from the Direct Model offered by Dell, Gateway and others and the product selection information and ordering available directly from the web.
A number of programs including Build-To-Order for smaller OEMs, BTO and Fulfillment for Large system Integrators, Reseller Programs for VARS and Smaller System Integrators are being pursued by the Distributors.