Disk drive shipments rise, revenues fall
Despite a strong fourth quarter performance, the hard disk drive (HDD) industry in 1998 experienced its slowest growth in more than a decade, according to a recent report from TrendFOCUS, a Palo Alto, CA-based research firm.
While worldwide HDD unit shipments increased 11% to nearly 145 million, industry revenues fell 1% to $25.7 billion. During the first three quarters of 1998, HDD vendors suffered through an inventory glut and rapidly eroding price margins. In the fourth quarter, shipments increased 23% over the same time frame in 1997, and accounted for the majority of 1998`s modest gains. As the year ended, HDD vendors corrected inventory levels and PC sales increased, resulting in higher drive demand.
"The biggest driver for demand is the PC market. Whatever that industry does has an abnormally large affect one way or another on the drive industry," says John Donovan, TrendFOCUS vice president. Donovan says the "purging" of the worldwide HDD inventory resulted in a new model for how major PC OEMs order drives, which may ironically prove to be a double-edged sword. Without extra drives on the shelves, HDD vendors are receiving "true demand orders," but they`re given shorter product-delivery windows. PC OEMs, preferring now to work order-to-order, no longer provide long-term forecasts of anticipated needs.
"The good side of this is you`re getting a true demand picture, but the bad side is that a drive vendor can get shut down pretty quick," says Donovan. "Right now, it`s really good because there`s no channel inventory."
From a form factor standpoint, the big winners and losers among 1998 unit shipments were 3.5-inch and 5.25-inch drives, respectively. With more than 121 million drives shipped in 1998, 3.5-inch drives had the largest (19%) percentage gain. But 5.25-inch drive shipments dropped 52% to slightly more than 4.6 million units.
The top three HDD vendors--Seagate Technology, Quantum, and Western Digital--lost a combined 10.3% market share in 1998 after altering production schedules to reduce inventories. On the other hand, Maxtor, Fujitsu, IBM, and Samsung gained market share as they increased production. Donovan says continued intense competition could lead to more consolidation.
Donovan says unit shipments in the first quarter of this year have been above average. "Normally after a strong Q4, there`s a substantial dip, but this year it doesn`t appear to be as severe."