April 14, 2010

Product development drives capacity and speed

Converge Storage Update.

Status quo is how we would characterize the HDD market in assessing the first quarter of 2010. Historically demand in the first quarter is the slowest of the year, but remains as expected and in line with previous years. When comparing the results of Q110 to Q409, it is evident that the shortages and demand that were prominent last quarter have diminished. However, this is not an overall indication of market direction but more of a seasonal trend. Most analysts are sticking to earlier predictions of double-digit increases in sales revenues year over year in the HDD space. Meanwhile, product development focused on more capacity and greater speed continues. Western Digital introduced a 600 GB VelociRaptor HDD, the highest-capacity 10K RPM enterprise 2.5" SATA drive designed to compete with the emerging SSD drives. Additionally, Toshiba is now offering a 1 TB and a 750 GB internal option in the 2.5" form factor more suited for the mobile, the SFF and the all-in-one desktop lines.

Specifically, there was no change in the 3.5" SATA pricing month over month with the exception of the 1.5 TB and 2 TB capacities. In these higher-capacity drives, there has been an approximate 5 percent decline in open market pricing to the mid-$90 and mid-to-low-$120 range, respectively. Pricing for the 2.5" SATA HDDs have remained stable since the last Market Insights report. We have not seen inventory issues in either form factor for this interface. As a result, most customers are seeking price point variance purchasing opportunities.

Last, low inventory levels in the IDE interface continue. While this is impacting pricing in both form factors, the effect is much more significant in the 2.5" drives. Here we have seen $5 to $7 increases starting at the 40 GB capacity and continuing through the full range. While this is in contrast to our general assessment of the market status, it is not a result of the typical factors that drive it but rather the phasing out of the interface. Industry segments such as off-lease mobile computing sales, where the IDE interface is still prominent on a 3- to 4-year refresh and original HDD destruction is a requirement, are experiencing difficulty finding replacement HDDs and thus driving price.

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