Close
  • Latest News
  • Artificial Intelligence
  • Big Data and Analytics
  • Cloud
  • Networking
  • Cybersecurity
  • Applications
  • IT Management
  • Storage
  • Sponsored
  • Mobile
  • Small Business
  • Development
  • Database
  • Servers
  • Android
  • Apple
  • Innovation
  • Blogs
  • PC Hardware
  • Reviews
  • Search Engines
  • Virtualization
Read Down
Sign in
Close
Welcome!Log into your account
Forgot your password?
Read Down
Password recovery
Recover your password
Close
Search
Logo
Logo
  • Latest News
  • Artificial Intelligence
  • Big Data and Analytics
  • Cloud
  • Networking
  • Cybersecurity
  • Applications
  • IT Management
  • Storage
  • Sponsored
  • Mobile
  • Small Business
  • Development
  • Database
  • Servers
  • Android
  • Apple
  • Innovation
  • Blogs
  • PC Hardware
  • Reviews
  • Search Engines
  • Virtualization
More
    Home Latest News
    • Storage

    Hard Disk Makers Seek Profits, Price Stability

    By
    Mark Hachman
    -
    January 23, 2004
    Share
    Facebook
    Twitter
    Linkedin

      Has stability returned to the disk-drive market? For the most part, according to analysts, but they warn that companies like Seagate and other storage manufacturers still show tendencies to stuff the reseller channel when times get tight.

      Seagate Technology LLC , Maxtor Corp. and Western Digital Corp. all reported earnings this week, and all three noted that desktop disk-drive pricing tightened during the fourth quarter, as OEMs tried to negotiate last-minute deals to lower the prices of their own PCs.

      But both Maxtors and Western Digitals revenues increased significantly from the same period a year ago, while Seagates revenue nudged upward by less than 2 percent. That, combined with Seagates problems with manufacturing, prompted analysts to postulate that perhaps any problems with the industry were largely confined to Seagate alone.

      However, both analysts and corporate executives warned that the hard drive industry isnt out of the woods just yet. The prices of disk drives, especially those that go into desktop PCs, are always in danger of swinging into wild oscillations of supply and demand that are amplified during the holiday selling season. For the most part, however, the industry has learned its lesson.

      “Theres no question that even with the industry so fiercely competitive that … pricing is not nearly as chaotic as in June 1999, when average desktop drive prices dropped from $88 to $69 in two weeks and market share changed not one whit,” said John Monroe, a disk-drive analyst with Gartner Inc. in San Jose, Calif. “Demand is essentially healthy,” he said, and the industry is working through normal problems, as well as the usual shifts in market share.

      “What happened was that price-cutting companies like Quantum [Corp.s] hard-disk business were removed [through a sale to Maxtor],” said Jim Porter, founder of DISK/TREND Inc. in Mountain View, Calif. “That was removed when Maxtor took ownership, and their management believes in getting their margins up.”

      The real question is how Seagate will react. Some analysts believe Seagate, which owns about a third of the disk-drive market, began “stuffing the channel” with drives to push through sales during the final weeks of the quarter.

      Seagate executives said they did not expect the excess channel inventory and that the company had shored up relations with OEMs and planned to do more business there.

      “I think you heard Seagate complaining about the desktop drive business,” Porter said. “Those other guys were not complaining; they picked up business.”

      For its part, Maxtor will continue to “act rationally in the channel,” according to Paul Tufano, Maxtors chief executive. “We know what actions are required to grow gross margin, and our goal is to execute on these initiatives throughout the year.”

      Next Page: Drive vendors seek a tactical edge. Could this mean lower prices?

      Drive vendors seek a


      tactical edge. Could this mean lower prices?”>

      In its conference call with analysts, Brian Dexheimer, Seagates executive vice president of worldwide sales and marketing, said that the first quarter will be “a tactical period where seasonal patterns and longer product lifecycles make industry profitability more sensitive to supply-driven pricing dynamics.”

      While desktop drive prices were low during the December quarter, they could fall even further before March, Dexheimer added.

      Stung by the probable decline in market share, Seagate will likely be more aggressive during the coming quarter. “We have no intention to walk away from our market share position,” Dexheimer said. “Well defend that territory to the extent it makes sense and works inside the business model and goals that we have.”

      Seagate isnt necessarily going to war on its competitors, as some have concluded, analyst Monroe said. “But if they persist in acting in certain ways, theyre going to say enough is enough, and the elephant will go into a rage. And that doesnt do anyone any good trying to rebuild a profit picture,” he added.

      But the early signs are that isnt happening. Although the industry is in just the first few weeks of the quarter, the pressure on the channel seems to be lessening—bad news for OEMs and consumers, who may see prices rise, or at least fall more slowly.

      /zimages/2/28571.gifDuring the annual DiskCON USA conference last summer, storage manufacturers expressed hope that the companies could extend the lifespan of hard disks in the market and earn a bit more profit for a production run. To read more about that strategy and more, click here.

      “Today, based on independent proactive steps that the industry leaders appear to be taking to appropriately manage shipments in the seasonally softer March quarter, we are confident that channel inventories will be reduced this quarter,” said Matt Massengill, chairman and chief executive of Western Digital, in Irvine, Calif., during the companys own conference call with analysts. WD reported revenue of $835 million on shipments of approximately 12.7 million units, and net income of $68.8 million.

      Massengill also blamed Seagate for stuffing the channel, although he said the outlook for disk drives is bright. “I cannot remember a time when we faced more promising opportunities in both consumer and commercial applications,” he said, noting the wide breadth of hard-disk-based products at the recent Consumer Electronics Show in Las Vegas.

      But although Maxtor, Seagate and Western Digital all reported profits, Wall Street hammered Seagates stock, lowering the share price about 20 percent in a single day. Executives at Maxtor and especially Western Digital hurried to do damage control.

      “In listening to all the commentary this week and some of the responses to that, I think that many have misinterpreted a lot of the comments that were made,” Massengill said. “What the drive industry is saying is that we expect to have softer unit volumes quarter over quarter and that we are going to take prudent steps to manage channel inventories. And I think that is having more of a more profound impact on earnings than margins are.”

      /zimages/2/28571.gif

      Mark Hachman
      Get the Free Newsletter!
      Subscribe to Daily Tech Insider for top news, trends & analysis
      This email address is invalid.
      Get the Free Newsletter!
      Subscribe to Daily Tech Insider for top news, trends & analysis
      This email address is invalid.

      MOST POPULAR ARTICLES

      Latest News

      Zeus Kerravala on Networking: Multicloud, 5G, and...

      James Maguire - December 16, 2022 0
      I spoke with Zeus Kerravala, industry analyst at ZK Research, about the rapid changes in enterprise networking, as tech advances and digital transformation prompt...
      Read more
      Applications

      Datadog President Amit Agarwal on Trends in...

      James Maguire - November 11, 2022 0
      I spoke with Amit Agarwal, President of Datadog, about infrastructure observability, from current trends to key challenges to the future of this rapidly growing...
      Read more
      IT Management

      Intuit’s Nhung Ho on AI for the...

      James Maguire - May 13, 2022 0
      I spoke with Nhung Ho, Vice President of AI at Intuit, about adoption of AI in the small and medium-sized business market, and how...
      Read more
      Applications

      Kyndryl’s Nicolas Sekkaki on Handling AI and...

      James Maguire - November 9, 2022 0
      I spoke with Nicolas Sekkaki, Group Practice Leader for Applications, Data and AI at Kyndryl, about how companies can boost both their AI and...
      Read more
      Cloud

      IGEL CEO Jed Ayres on Edge and...

      James Maguire - June 14, 2022 0
      I spoke with Jed Ayres, CEO of IGEL, about the endpoint sector, and an open source OS for the cloud; we also spoke about...
      Read more
      Logo

      eWeek has the latest technology news and analysis, buying guides, and product reviews for IT professionals and technology buyers. The site’s focus is on innovative solutions and covering in-depth technical content. eWeek stays on the cutting edge of technology news and IT trends through interviews and expert analysis. Gain insight from top innovators and thought leaders in the fields of IT, business, enterprise software, startups, and more.

      Facebook
      Linkedin
      RSS
      Twitter
      Youtube

      Advertisers

      Advertise with TechnologyAdvice on eWeek and our other IT-focused platforms.

      Advertise with Us

      Menu

      • About eWeek
      • Subscribe to our Newsletter
      • Latest News

      Our Brands

      • Privacy Policy
      • Terms
      • About
      • Contact
      • Advertise
      • Sitemap
      • California – Do Not Sell My Information

      Property of TechnologyAdvice.
      © 2022 TechnologyAdvice. All Rights Reserved

      Advertiser Disclosure: Some of the products that appear on this site are from companies from which TechnologyAdvice receives compensation. This compensation may impact how and where products appear on this site including, for example, the order in which they appear. TechnologyAdvice does not include all companies or all types of products available in the marketplace.

      ×