The disk-drive industry was built on the backs of colorful,
bold and fast-moving entrepreneurs who battled so fiercely they
sometimes destroyed a business cycle before it was fully
There were more than 100 disk-drive makers in the early 1980s.
Boom and bust cycles were common. Today, there are three
disk-drive companies:Seagate Technology (
),Western Digital (
) and Toshiba, a result of massive industry consolidation.
The competition remains fierce. Seagate and Western Digital,
each with about 40% of global market share, continually leapfrog
each other with new advancements. The latest came from Western
Digital unit Hitachi Global Storage Technologies, acquired early
this year. Last week, Hitachi announced a new "helium-filled
hard-disk-drive platform." Because helium is thinner than air,
makers can pack more data capacity into drives that use less
power and run cooler.
In March, Seagate announced technology that doubles the
storage capacity of current disk drives.
The announcements show how hard both work to continually push
the envelope. It's paramount for several reasons, the most
important being that data creation is growing at an exponential
scale. Last year, data produced globally passed 1.8 trillion
gigabytes, double the amount from 2009. And that will swell
another 50% this year, said a study sponsored by storage systems
"The demand for storage is great," said Patrick O'Malley,
Seagate's chief financial officer. "We're looking out to the end
of the decade and the demand continues to exceed anything we have
ever shipped to date."
The short-term picture is not quite as rosy. Western Digital,
at its annual investor's conference last week, cut sales
estimates for the current quarter based on lower-than-expected
Seagate will hold its annual investor's conference Thursday
and Friday. O'Malley wouldn't discuss what Seagate will announce,
but it's expected it could, like Western Digital, cut
expectations, said Edward Parker, equity analyst at Lazard
There is no question that the disk-drive market is facing
significant head winds, said Parker, "but with the structural
changes and consolidation, the long-term view is still
A big challenge for now is a slowdown in sales of personal
computers, a huge market for disk drives. In late August,
research firm IDC lowered its outlook on PC shipments from an
annual growth rate of 1.7% in 2011 to 0.9% for 2012. It also said
computer server shipments fell 4.8% in the second quarter, the
third straight quarter of year-over-year declines.
"The PC market is very weak, and concerns remain as to how
strong and when it will bounce back," said Parker.
PC sales have slowed for several reasons. These include the
typical lull in sales that occurs before the arrival of big new
) will be shipping a new operating system, Windows 8, next
) is also getting ready to launch new PC microprocessors. Both
events could ignite a new round of PC buying, though for now
everyone is being cautious with inventory.
"All this is happening against a weakening economic recovery,"
said John Rydning, industry analyst at IDC. "We knew it would be
a tough period and will remain challenging through the first half
Despite these woes, shares of Seagate are up 41% this year.
Western Digital shares are up 27%.
Investor confidence in Seagate and Western Digital has risen
for several reasons. One is that the industry recovered faster
than expected from the major disruption of production due to
flooding in Thailand a year ago, which destroyed manufacturing
plants run by Western Digital and Seagate.
Another is due to industry consolidation, which tempered
previous episodes of industry imbalance.
The success of Seagate and Western Digital is very important
to buyers of disk drives. Being the two dominant suppliers, their
major customers are willing to work much more closely with them
both, providing advance notice of future technology plans so that
both companies can be ready with the right drives at the right
"We need to deploy our capital very carefully and selectively
and align our product portfolios very well with customers," said
Another benefit of industry consolidation is more stable
pricing. In times past, it was not uncommon for some
manufacturers to over-produce in the hopes of gaining market
share. If they didn't get the extra business, prices were slashed
to offload excess inventory, thrusting other companies into the
red along with them.
Despite the new stability, bumps in the road still occur. This
is happening right now with the rapid embrace of tablet computers
-- like the Apple iPad -- which don't use disk drives. Tablets
use chip-based storage called flash. Seagate and Western Digital
are both building expertise with flash storage, but more needs to
"We're going through a major shift," said O'Malley.
Though tablets purchases have dampened PC and portable
computer sales, there is still an upside for Seagate and Western
Digital. Tablets, smartphones and other portable devices are
contributing to the explosion in data creation.
Data are being created, collected and analyzed at enormous
scales, part of an emerging trend called Big Data. Through mobile
devices and social networks, consumers now provide tons of data
on what they eat, where they visit, and what they like and don't.
Add in e-commerce on Amazon, eBay and Wal-Mart, data from credit
card firms, manufacturers and shippers, as well as shifting
economic, weather and population statistics, and the amount of
information gets really, really big.
A whole new software industry has been created to make use of
Big Data, which need to be stored, at some point, on disk drives.
This is happening at the same time another industry movement,
called cloud computing, is approaching mainstream acceptance. All
manner of data are being stored in massive disk-drive farms,
accessible remotely through the Internet, via the cloud.
"At the end of the day all that data needs to be stored
somewhere," said O'Malley. "Every inflection point has a tech
transition. Storage is being disaggregated. We might lose in one
area but we gain in another."