Business & Finance
01:33 PM

Plunging Prices Squeeze Hard Disk Drive Industry

Prices came under pressure through intense competition among the six major hard disk drive suppliers, particularly in the market for mobile-PC storage.

The hard disk drive industry in the first quarter got hit with a double whammy of plunging prices and declining shipments, a market research firm said Wednesday.

Shipments for the quarter increased by 12.2% from the same period a year ago, but fell by 4.7% from the fourth quarter of 2006, iSuppli said. The sequential decline came as a surprise, because of strong demand in the computer market. Shipments of 114 million units in the quarter fell below iSuppli's forecast of 118 million units.

Prices came under pressure through intense competition among the six major hard disk drive (HDD) suppliers, particularly in the market for mobile-PC storage, iSuppli said. Fujitsu, Hitachi Global Storage Technologies, Samsung Electronics, Seagate Technology, Toshiba, and Western Digital competed over price with similar products for the fast-growing notebook market.

Lower HDD prices led to reductions in the cost of PCs, good news for consumers and businesses. In addition, price drops made HDDs more competitive in the notebook market with the alternative solid-state drives (SSD) based on flash memory.

SSDs are becoming more common in notebooks. The devices are more durable than HDDs, use less power, and generate less heat, making SSDs a strong alternative in ultraportable notebooks. However, they're also considerably more expensive, and lower HDD prices are expected to delay the penetration of SSDs in notebooks.

As a result of stiff price competition, market leader Seagate saw its gross margin fall to 21.3% in the quarter from 24.3% a year ago, iSuppli said. Net income dropped to $212 million from $274 million.

Western Digital also suffered a decline in gross margin to 15.7% from 19.3%, but the company managed to increase net income to $121 million from $103 million a year ago. Hitachi GST's net loss widened in the first quarter to $150 million from $46 million a year ago.

To improve gross margins, HDD manufacturers are expected to pressure suppliers to reduce the cost of disks, heads, motors, casings, and other materials. As a result, iSuppli expects suppliers to be pushed to lower HDD manufacturers' costs by as much as 5%.

In terms of market share, Seagate remained on top in the quarter with a 34.6% share of global shipments, which was flat from the previous quarter. Western Digital increased its market share 1% to 21.5%. Hitachi held steady at 17.2%, and Samsung was up slightly at 11%. Toshiba was down 1% to 7.3%, and Fujitsu fell by less than a half percent to 7.1%.

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