HDD channels sales soft in Q3

By Sonia R. Lelii

The channel is experiencing softer than seasonal demand this quarter in hard-disk-drive sales, particularly in the US and Asia, but the situation began to stabilize at the end of August, according to a report from equity research firm Needham and Company.

Richard Kugele, a research analyst at Needham, says that worldwide HDD sales in July and the first half of August were down 10% to 15% versus sales in the second quarter.

Sales in Europe were flat, while sales were soft in Asia and the US. "Most of the decline occurred in the US and Asia," says Kugele. "Now, since the back half of August, those numbers are improving. The sell-through rate has been improving week by week."

Kugele could not pinpoint the factors that caused the soft sales, such as whether customers were saturated in inventory, but he says that the first half of Q3 may have been soft because customers were holding back in anticipation of price declines that never materialized. For example, HDD prices through early August were essentially flat sequentially (at the street level), and since then have declined only about 3% to 5%, according to Kugele. (Street price generally refers to the actual price of disk drives and includes incentives and rebates that distributors include.)

Over the past year and a half, a number of vendors have been spearheading reform measures to close the gap between the book price and street price. "The goal is to have better transparency in pricing, so that customers can feel they are getting the real best price," Kugele explains.

The Needham report also notes that channel inventories are in good shape, at the typically healthy level of four to five weeks.

Shifts in hard-disk-drive channel sales can mean a big difference to resellers and distributors. The channel typically operates on gross margins of 3% to 6%. "It's a tight world. They operate on low gross margins so every penny counts," says Kugele.

This article was originally published on September 07, 2004