Hard Drive Industry Shrugs Off Economic Concerns, Post Double Digit Growth Rates

El Segundo (CA) - Hard drive makers are quickly learning to deal with the economic downturn by lowering their cost. The increasing mass storage threat from NAND flash devices is answered with perpendicular magnetic recording technology, which enables the industry to stay at least one step ahead of NAND capacity levels and protect its most important markets.

According to iSuppli, 137 million hard drives were shipped during the second quarter of this year, which translates into a healthy 21% gain over the same period last year. In the light of the generally reported economic slowdown, this may sound surprising to some, but the market research firm said that hard drive makers profit from a virtually insatiable demand for mass storage. Especially interesting is the fact that the changes in the economy have crippled the NAND flash industry, while hard drive makers such as Seagate appear to get away with one black eye.

"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. "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."

HDD vendors reported decent operating margins in the first quarter. Seagate reported $363 million in profits, or 11.7% of revenue, Western Digital announced $298 million, or a 14% return and Hitachi GST stated it had earned $65 million, or 4.6% 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 said that the hard drive 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 there was negative growth, iSuppli said.

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, according to the market research firm.

iSuppli estimates that hard drive makers will ship about 572.9 million hard drives this year, up 17% from 516.2 million last year.