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Strong Q3 revives HDD profit: iSuppli

Posted: 09 Jan 2008 ?? ?Print Version ?Bookmark and Share

Keywords:hard disk drive? market report? solid state drives?

iSuppli Corp. reported that the hard disk drive (HDD) industry had a resurgence in profitability in Q3, signaling that the storage market finally is on firmer ground.

In Q3 07, the HDD industry shipped 138 million drives, up 19.6 percent from 115 million drives in the previous quarter. Combined Q3 revenue for all HDD suppliers hit $8.8 billion, up 22.2 percent.

"The HDD industry as a whole returned to profitability in Q3, marking the first time the business has been in the black since December 2006," said Krishna Chander, senior analyst for storage systems at iSuppli and author of the report, Storage: Profitability Returns to the HDD Industry.

Leading HDD maker Seagate Technology LLC in Q3 reported a gross margin of 24.6 percentup 300 basis points from 21.6 percent in Q2. Second-ranked HDD supplier Western Digital Corp. (WDC) reported a gross margin of 18.4 percent, up 340 basis points from Q2's 15 percent. Hitachi GST ranked third and narrowed its losses to $58 million, down from $174 million in the previous quarter, and projected an optimistic Q4 with a profit estimate of over $9 million.

"The revival of HDD profits is being driven partly by the consumer electronics market," Chander said. "Shipments to consumer electronics applications represented 17 percent of the total HDD market in Q3, up from 15.5 percent in Q2. iSuppli eyes this to continue to grow to 22 percent by Q3 08. The rising adoption of high-definition TV (HDTV) is spurring demand for higher-capacity HDDs for digital video recorders (DVRs), helping to propel consumer electronics sales."

The computer market is propelling HDD shipments also, with enterprise secondary-storage external drives experiencing strong demand. The threat from solid state drives (SSDs) using NAND flash instead of traditional rotating media has not stalled shipments or profitability in the HDD industry. In terms of HDD revenue in Q4, iSuppli is estimating it to be around $9.3 billion; a slight dip in industry revenue in prior quarters has been overcome by firm pricing and increased supply of HDDs to both the computing and consumer electronics segments. Moreover, there is an allocation mode in the industry for specific types of hard drives, noted iSuppli.

iSuppli predicts conditions in the HDD market will remain robust in Q4, with shipments rising 6.9 percent to 147 million units. The HDD industry has worked its way out of major challenges it faced in 2005 and is rapidly growing, confounding experts who predicted the slowdown of this industry. Profitability for Seagate and WDC is expected to rise in 2008.

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