[July 23, 2008]

iSuppli Corp: Insatiable Demand Carries HDDs Through Recession

(M2 PressWIRE Via Acquire Media NewsEdge)
RDATE:22072008

El Segundo, Calif. -- Despite a poor second-quarter earnings
performance from leading Hard Disk Drive (HDD) supplier Seagate
Technology LLC, the overall HDD industry is continuing to thrive in
2008 due to an insatiable demand for low-cost, high-capacity storage
devices, according to iSuppli Corp.

"Unlike the NAND flash chip industry, HDD vendors have been able to
resist the worst impacts of the economic slowdown by learning how to
control their costs," said Krishna Chander, senior analyst for storage
systems at iSuppli Corp. "The industry also has been aided by increased
demand for more storage in PCs-as new applications demand increasingly
larger-capacity HDDs. As long as demand for low-cost storage capacity
keeps rising, the HDD industry will find ways to deliver."

Double-digit shipment growth

In the first quarter of 2008, HDD vendors shipped 137 million units, up
21 percent on a year-on-year basis, with the bulk of the drives going
to five segments: mobile computers, desktop PCs, consumer electronics,
external drives and enterprise applications, i.e. both Serial Advanced
Technology Attachment (SATA) and Serial Attached SCSI (SAS) drives.

The attached figure presents unit shipments plus the year-on-year
percentage growth forecast for the HDD industry for the period of 2000
through 2008.

HDD vendors reported healthy operating margins in the first quarter.
Seagate Technology LLC reported $363 million in profits, or 11.7
percent of revenue, Western Digital Corp. announced $298 million, or a
14 percent return and Hitachi GST stated it had earned $65 million, or
4.6 percent of revenue. For Hitachi GST, this was a desirable outcome
after many quarters of being in the red.

All six major vendors are expecting the industry to continue to
increase shipments in 2008. iSuppli forecasts second-quarter shipments
will be up by 16 percent compared to 2007.

Seagate's struggles

"It's noteworthy that the U.S. recession did not have a material impact
on the HDD industry during the last two quarters," Chander said.
"Seagate's second-quarter net income did come in lower than expected,
but this was not because of any decline in demand, but rather due to
lower prices for its products. The company's shipments of HDDs for the
fast-growing notebook PC segment were relatively low compared to sales
of desktop-PC drive shipments. With notebook PC HDDs priced higher than
those for desktops, Seagate's income was negatively impacted. The
company already is working to remedy this situation."

The road to recovery

The HDD industry has overcome major upheavals and faced down doomsday
predictions before-and is likely to do so again.

Throughout the history of the HDD business, shipments have increased by

double-digit percentages every year, except for the disastrous period
of 2001, when they suffered negative growth. Within a year, HDD
shipments recovered and the technology entered the consumer-electronics
field with applications such as the Apple iPod, other personal media
players and set-top boxes.

But the HDD industry soon faced a new challenge: highly
price-competitive NAND flash memory, which vied with HDDs for design
wins in the consumer-electronics field. Small-form-factor HDDs for such
applications were quickly eliminated. However, the HDD stayed one step
ahead of the NAND flash competition in other consumer electronics
devices by focusing on higher-capacity drives.

NAND-type flash continued to make inroads in the computer segment as
well, where it was used for solid-state drives. There too, the hard
drive industry learned to survive by adopting portions of NAND flash in
its HDDs-called Hybrid Hard Drives or HHDs. The HDD industry has
transitioned to Perpendicular Magnetic Recording, which has helped it
increase area density at a healthy 40 percent Compound Annual Growth
Rate (CAGR).

From 2003 to 2008, HDD industry shipments grew at an astounding CAGR of
17.2 percent.

No hard times for hard drives

HDD shipments have been rising since 2001 at double-digit rates, and
despite the challenges of the last few years, demand for drives has not
begun to dry up. As long as consumers think in terms of terabytes of
storage, there is a great potential for the HDD industry to keep
meeting these demands.

CONTACT: Jonathan Cassell, Editorial Director and Manager, Public
Relations, iSuppli Corporation
Tel: +1 408 654 1714
Tel: +1 408 921 3754
WWW: http://www.isuppli.com

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