February 17, 2010

Expect HDD prices to increase along with shortages

Converge Storage Update.

The storage market pauses before anticipated race
In the January edition of our Market Insights Storage Update we projected a positive long-term outlook for the HDD market with some near-term uncertainty as we emerged from the holiday period. At the midway mark of Q1 CY10, we expected a clearer picture of the current status of the market. However, presently this is not the case.

Recent HDD market analyst reports continue to predict year-over-year unit volumes to increase by 15%, with some stating that sales levels have recovered to pre-recession levels. Further, analysts expect prices to increase as supply remains tight vs. demand. Meanwhile, the shortages on 750 GB and 1 TB drives seen during the holiday run-up have subsided, at least temporarily, with pricing softening at this time. We also expected the shortage to broaden to the 1.5 TB capacity. Not only has this not occurred yet, we have actually seen a drop in pricing from the $105-$110 range to sub-$100 levels with little secondary market activity.

There has been little change in the 2.5" SATA HDD market over the past three months. Demand remains strong for the 160 GB thru 500 GB capacities in the 5400 RPM speed. It appears that supply is adequate and most manufacturers are shopping for cost savings. However, there is steady part-number-specific service demand that commands premium pricing.

Last, there is growing demand for IDE interface HDDs in both the 2.5" and 3.5" form factors. This is not a product of increased consumption but rather of decreased production coupled with continued service requirements as well as refurbishment of older technology to support trailing-edge markets. The demand has been stable month over month, but supply is diminishing. The result is an uptick in pricing for 80 GB through 250 GB in the desktop segment and, to a greater extent, the 40 GB through 120 GB capacities in the mobile segment.

In conclusion, we believe the current state of the HDD market is not indicative of the long-term outlook. This is historically a slow quarter for storage space, and there are too many opposing variables to sustain this course. Looking forward, we expect prices to tick up moderately as we shift back to more of a shortage environment across the mainstream capacities in both segments and interfaces.

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