Storage Business Looking Up

Attendees of the DiskCON industry conference say the disk drive industry is looking rosier than in recent seasons.

SAN JOSE, Calif.—The disk drive industry is happy. Cautious, but happy.

After weathering years of price declines, cutthroat competition and questions about whether customers actually needed all the storage manufacturers had to offer, vendors can afford to breathe a small sigh of relief.

Drive shipments are expected to grow from 225.4 million units this year to 239.7 million units in 2004, according to John Donovan, vice president at market researcher Trend/Focus Inc. However, both analysts and manufacturers alike expect a sharp 19.4 percent increase in 2.5-inch drives from this year to the next, as the IT world shifts more of its workforce to notebook computers.

So far, the run-up toward the holiday selling season has not brought with it the type of inventory fluctuation that has characterized past years. Drive makers and analysts who presented at the DiskCON trade show and various storage conferences here this past week say theyre seeing a steady demand for their products, which has firmed prices. In return, the drive industry has been able to supply customers with a steady supply of product, eliminating any supply potholes that could halt shipments of notebooks or desktop PCs.

"If you look at the seasonality, everythings tracking where it should be," said Paul Tufano, president and chief executive of Maxtor Corp, Milpitas, Calif., speaking at the Lehman Bros. "Half Day of Hard Drives" presentation last week.

"The outlook is excellent," added Bill Watkins, president and chief operating officer of Seagate Technology Inc. of Scotts Valley, Calif., speaking at the Prudential Equity Storage Tour last week. "Im very hopeful for the future."

Tufano said his company is experiencing 13 percent volume growth increases compared with 2002 versus about a 10 percent increase in PC sales, indicative of strong demand.

The real boost, however, will be in consumer-electronics applications. The industry has already received a boost from the personal video-recorder (PVR) industry, with approximately 2 million units shipping in 2002, according to Trend/Focus. Those sales still indicate an immature market, Donovan said, and Trend/Focus anticipates the PVR market growing to approximately 8 million units this year and 25 million units in 2006.

Next page: Storage prices and capacities are stabilizing.