Diskcon '98 Optimism
Drive Forecast Upbeat
From Page One of Electronic News: September 28, 1998 Issue
By Dylan McGrath
San Jose--Optimism was not lacking at last week's Diskcon '98, as many industry vendors and analysts saw reason to hope that a pickup in sales of rigid disk drives is not far off. Analysts said excess inventory is clearing from the channels of OEMs and unit shipments are expected to pick up during 4Q98 and early 1999.
"One of the problems the industry has had, has been too much inventory in the desktop PC area," said James Porter, president of Mountain View, Calif.-based Disk/ Trend. "Those inventories have largely been worked out of the channel."
Representatives of major drive makers expressed cautious optimism. David Walling, manager of hard disk drive strategy at IBM, said, "We (at IBM) have had a great first half," he said. "We are looking for a strong third quarter. If the rest of the industry sees a pick-up, we'll be happy to see that also. The fourth quarter is typically a very strong quarter."
"I think overall everyone is preparing for a seasonally stronger demand period going into the fourth calendar quarter," said Roger Katz, director of desktop products marketing at Quantum. "I think with the signs we've seen through the third calendar quarter, things are on track for a good calendar quarter four. I wouldn't say the ball is going to be hit out of the stadium, because of economic crises in places like Asia-Pacific, Brazil and Russia. But I think, overall, we will see a healthy increase in run rates."
Mr. Katz said he expects growth rates for both the PC and hard drive industries to return to levels of about 14-15 percent. He said even those areas stung by economic crises will still need to invest in information technology, although they may be more price sensitive than they otherwise would be.
Other vendors at Diskcon, a five-day, 450-exhibitor tradeshow sponsored by the International Disk Drive and Materials Association (IDEMA), were generally optimistic that a turnaround in business conditions is close at hand. While even the most optimistic forecasts for the beleaguered semiconductor industry currently predict a turnaround no sooner than the second half of next year, many suppliers to the disk drive industry say they have reason to believe business will pick up as soon as the next 60 days.
Steven Vann, senior product engineer at Ion Systems, said drive makers are currently engaged in "a tremendous amount of investing," even in places like Thailand and Malaysia. "Everyone is preparing for the ramp." Mr. Vann added that he has heard people say the downturn will not last any longer than another 60 days.
"I'm starting to hear that the disk drive business is showing signs of coming alive," said Jack Justice, electronics/assembly sales manager for Motoman, a wholly-owned subsidiary of Yaskawa Electric America (YEA). "Several of our customers are starting to engage in active projects again. Things are picking up."
But at least one representative of a vendor expressed concern over any real increase in business. Thomas J. Weiss, marketing specialist with Tektronix's computer segment, said he worried about the situation in Asia, particularly Japan, affecting business. "I would be very cautious about hoping for any turnaround," he said, "when you see the upheaval in Malaysia, where they just arrested the minister of finance. I am cautiously optimistic, but I'd like to see some evidence (of a turnaround) first."
John Monroe, chief analyst at San Jose-based Dataquest, agreed that the inventories are clearing out, but said they are "still slightly out of whack.''
Industry forecasts call for a significant growth in disk drive unit shipments in both 1998 and 1999. According to Disk/Trend, worldwide unit shipments should grow this year by 16.9 percent, up to 152.6 million drives, with another 15.8 percent increase predicted for 1999.
Forecasts by IDC and Dataquest also show significant growth, although less so than the Disk/Trend forecast. Dataquest's forecast calls for drive unit shipments to grow from 128.3 million in 1997 to 138.5 million in 1998, followed by a surge to 155 million in 1999. IDC forecasts unit growth from 129 million in 1997 to 142.4 million in 1998, increasing to 163.3 million in 1999.
The bad news for drive makers and equipment suppliers is, while unit shipments should rise, the forecasts call for revenues to grow very slowly. The industry is apparently still plagued by overcapacity, and price wars have squeezed companies' margins.
According to Disk/Trend, while worldwide shipments of rigid disk drives should be up about 16.9 percent in 1998, sales revenues will climb about 7.9 percent. Disk/Trend calls for 1998 sales revenues of about $34.2 billion, climbing to $38.7 billion in 2001, an average annual increase of 4.2 percent. IDC's forecast has revenue climbing from $27.4 billion in 1997 to $33.3 billion in 2000, an average annual increase of 6.8 percent.
But Mr. Porter believes the rigid disk drive market is not that bad off. "Actually, the industry is in pretty good shape," he said. "Parts of it are in much better shape than you would believe. So much of the whining that has been going on in the press and elsewhere has been because the big three American dedicated drive manufacturers--Seagate, Western Digital and Quantum--have been suffering."
Mr. Porter said the industry's largest players have been losing market share to IBM, Maxtor Corp., and several Asian companies. According to Dataquest numbers, between 1996 and 1997, Seagate's market share decreased from 27.56 percent to 23.48 percent; Quantum's market share fell from 22.25 percent to 20.39 percent; while Western Digital's share increased slightly from 18.16 percent to 18.79 percent. According to IDC, by 2Q98, Seagate's market share was about 20 percent, Quantum's about 17 percent, and Western Digital's about 14 percent.
"The reason (other) companies took market share is that they got there earlier with significant new products," Mr. Porter said. "Maxtor earned what they got. Fujitsu earned what they got."
"The good news is that we are in a growing market," Mr. Monroe said, "which is why I take issue with people saying that we are in a downturn. We are not in a downturn. Unit shipments continue to grow." Later, Mr. Monroe added, "A lot of markets aren't growing in unit shipments. We are very fortunate that ours is."
Mr. Porter said the Asian financial crisis will affect price pressures, but should not significantly affect demand because North America and Europe, two relatively strong economies, still make up about 85 percent of the worldwide market share for disk drives. Mr. Monroe said the industry should remain strong as long as it resists the temptation to overbuild manufacturing capacity. "There ain't nothing wrong with the demand picture," he said. "Its just a matter of can we responsibly meet the demand without overbuilding. If we continue to overbuild, we will just continue to see more of what we saw in 1997 and 1998." |
