Disk Drive Leader Seagate In Harmony With iPod23 December 2004
The disk drive industry is in tune with the success of digital music players, video recorders and other consumer electronics wares.
In the past 18 months, disk drive sales to the consumer electronics market have doubled, says Brian Dexheimer, executive vice president of worldwide sales and marketing at No. 1 disk drive maker Seagate Technology (NYSE:STX - News). In that same span, sales to computer makers and business markets have risen less than 10%, he says.
"The market in consumer electronics is looking fantastic," said Brian Alger, an analyst at investment bank Pacific Growth Equities. "Since the start of the dot-com era, everyone has been talking about widespread access to information and entertainment anywhere and any time. All of that requires lots of storage."
Tripling In One Quarter
Signs of growth abound. Seagate says it sold 400,000 of the one-inch-diameter hard drives used in Apple Computer's (NasdaqNM:AAPL - News) iPods and other digital music players last quarter.
This quarter, it expects to sell 1.3 million. It remains an Apple iPod drive supplier, as is Hitachi (NYSE:HIT - News) and ToshibaTOSBF.PK.
Consumer electronics could just be warming up as the huge driver of the drive field.
Samsung ElectronicsSSNGY.PK this month introduced the first camera phone with a disk drive.
MitsubishiMSBHF.PK recently introduced the first high-definition TV set with a disk drive.
The next generation of the Sony (NYSE:SNE - News) PlayStation will also contain a hard drive, analysts say.
Tiny flash memory cards have been the storage of choice in consumer electronics wares. But with storage needs increasing fast in those products, disk drives become a more economical alternative -- provided Seagate and its rivals can make drives small and light enough, and for the right price.
The growing use of disk drives in consumer electronics is welcomed by the industry, which has a history of boom and bust cycles and price wars. Seagate recently posted its third straight quarter of declining year-over-year revenue, a result of intense price competition for drives used in servers and desktop PCs. The average price of a disk drive has fallen to $72 from $98 early this year, Seagate says.
The good news, though, is that disk drives for some consumer electronics are in short supply, thus propping up profit margins.
HDTV Another Catalyst
Two weeks ago, Seagate raised sales and profit estimates for its fiscal second quarter ending this month. It now expects revenue of $1.76 billion, up from previous estimates of $1.58 billion to $1.65 billion.
It expects to earn more than 22 cents a share, excluding restructuring charges, about double its previous estimate.
Seagate credited strong demand in consumer electronics.
"The appetite for mass storage is insatiable at the consumer electronics level," said Seagate's Dexheimer. "A catalyst for this demand just now emerging is in the area of high-definition television."
Storage needs for HDTV recording is about four times greater than current TV, he says.
Disk drive shipments for consumer electronics will top 22.5 million units this year, up from 13.5 million units last year, says International Data Corp.
IDC predicts 70 million, or 20%, of all hard drives shipped annually will be for consumer electronics by 2007 vs. 10% this year.
"The potential for growth is enormous and exponential," said IDC analyst John Buttress.
He says demand keeps rising faster than expected. Companies underestimated the demand for one-inch drives by about 1.5 million units this quarter.
Analysts say that caused a shortage for the iPod, which is selling out at some retail outlets.
Cell phones are another emerging market for disk drives. Handsets are starting to store a lot of data, and hard drives can be a cheaper alternative than flash memory. The first cell phones with hard drives are just starting to come out.
Analysts say cell phone disk drive sales could top 15 million in 2008.
"That's a conservative estimate," said Buttress. "Who knows? It could be 100 million cell phones by then."
IBM (NYSE:IBM - News) built the first one-inch disk drive, but sold its hard-drive business to Hitachi in mid-2003.
Hitachi is celebrating the fifth anniversary of the one-inch drive, first released in late '99, with the announcement that it's now shipped 5 million of these drives in total.
It now expected to make "several million units per quarter."
Homes In 'Overdrive'
Hitachi Global Storage Technologies estimates the average home will have 10-plus hard drives within the next five to seven years.
The average home today might have five drives. This assumes the home has two PCs, a video game console, an MP3 digital music player and a digital video recorder such as TiVo.
In the future, household items with disk drives might also include one or two cell phones, one or two cars, a video camera and maybe another one or two handheld devices. They'll store all manner of digital content, from photos and music and TV shows to a multitude of personal documents.
"The consumer era for the disk drive industry is just starting," said Brian Healy, senior vice president of strategy and marketing for Hitachi's storage business.
At next month's Consumer Electronics Show in Las Vegas, Hitachi will showcase its line of drives tailored for the consumer electronics market.
Many firms at CES are expected to spotlight digital homes completed with wireless or wired networks of all manner of consumer electronics.
Long one of the industry's Holy Grails, the pieces for creating digital homes are starting to come together. That will further fuel disk drive sales.
What's slowing the advance of the digital home is the lack of standards in transporting content from one platform to another, say from a TV to a PC.
DivXNetworks, a multimedia software vendor, is among those looking at this issue.
"We're looking to solve some of the big problems with shared content," said Eric Grab, technology architect at DivX. "We can make it easy to transport data from one system to the next."
Source: Investor's Business Daily
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