A Softer Market for Hard Drives - Analyst Blog
07 Ottobre 2011 - 3:47PM
Zacks
One of the most important components of modern-day consumer
electronic devices, such as PCs, laptops, notebooks, tablets, pen
drives, cameras or iPods often goes unsung. This is because storage
capacity is such an essential part of these devices that we
practically forget to see it separately as a component.
But this sub-market, if you will, has been evolving too, with
manufacturers striving to come out with advanced storage devices to
suit varying customer needs.
The computing segment primarily consumes three kinds of storage:
internal, external or network attached. Internal storage is
generally a hard disk drive (HDD) or solid-state drive (SSD). An
SSD refers to a semiconductor-based primary storage medium as
opposed to magnetic media such as a hard drive.
External storage devices, such as those attached through USB
drives can be easily connected to any computing device to transport
or share data between computers. Of course, there are some
limitations to sharing in this way, since the device needs to be
attached to the computer to enable data transfer or viewing. This
is where network attached storage (NAS) enters the picture.
Unlike an external hard drive, an NAS may be connected directly
to a router or a hub and is therefore available to all computers
within the network at any given time.
Although storage is typically a much more stable market, the
sluggish PC market could take a toll on it. The brunt of the
softness is likely to be felt in the HDD category, which remains
the primary storage component for computers.
But distributors are not too worried, since historically,
storage has proved to be the most resilient IT category in a
constrained budget environment, much ahead of Software and Servers.
At present, there appears to be no fear of oversupply, since
channel inventories are pretty lean.
However, given that demand remains extremely soft, there is
unlikely to be any pricing support. Top IT distributors
Ingram Micro Inc. (IM), Arrow Electronics
Inc. (ARW) and Avnet Inc. (AVT) appear to
be banking on demand from the small and medium business (SMB)
segment to boost PC sales in the current quarter.
Industry experts are, however, saying that the trend is toward
replacement of HDDs with SSD (or flash) drives. These drives are
non-volatile (unlike HDDs), shock resistant, high-speed and
relatively power efficient. Therefore, despite their higher prices,
these drives are liked by many original equipment manufacturers
(OEMs).
All major tablets that have been announced or shipped this year
use flash chips in place of a spinning hard disk drive for storage.
Smartphones also use NAND flash, as do many net books.
Analysts say that the two most prominent rivals in the storage
space, Seagate Technologies plc (STX) and
Western Digital Corp. (WDC) will become more
meaningful players in the SSD space with the closure of their
respective acquisitions.
In April, Seagate acquired Samsung Electronics Co.’s HDD
business. The deal will give Seagate access to Samsung's NAND-type
flash chips for its solid state drive products. In March, Western
Digital entered into an agreement with Hitachi
Ltd. (HIT) to acquire its Global Storage Technologies
business.
Seagate has already been dealing with SSD products for several
years, but has struggled to gain significant traction. Management
believes that the closure of the Samsung deal could serve as a
catalyst to get that business moving. But as of now, Western
Digital is somewhat unclear as regards the SSD space. Analysts
nevertheless have high hopes regarding the company’s efforts in
this space, leveraging technologies from the newly acquired
unit.
The disk drive market is highly competitive, and has experienced
drastic pricing pressure due to supply/demand volatility. In the
near future, hard disk companies might be vulnerable to pressures
as customers such as tablet PC makers choose flash cards for
storage purposes instead of the customary hard disks. The situation
may compel companies to cut hard disk prices, which may in turn
hurt margins. This will step up consolidation in the market in an
effort to alleviate competition.
Currently, Seagate has a Zacks #3 Rank (short-term Hold).
However, Western Digital currently hold a Zacks #4 Rank, which
implies a Sell rating.
ARROW ELECTRONI (ARW): Free Stock Analysis Report
AVNET (AVT): Free Stock Analysis Report
HITACHI (HIT): Free Stock Analysis Report
INGRAM MICRO (IM): Free Stock Analysis Report
SEAGATE TECH (STX): Free Stock Analysis Report
WESTERN DIGITAL (WDC): Free Stock Analysis Report
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