Optical disc drive sales..........
news.cnet.com
Storage systems shipments rise, revenues drop
By Joe Wilcox
Staff Writer, CNET News.com
October 14, 1999, 5:00 a.m. PT
Manufacturers of desktop storage systems may be shipping lots of units, but they're
not making as much money as you might expect.
That's the word from market researcher International Data Corporation, which reported that
revenues from selling CD-ROMs and similar drives dropped 10 percent to $7.3 billion last
year.
At the same time, unit shipments jumped 34 percent to 123 million. IDC only included
optical devices--CD, DVD, CD-R/RW, and recordable DVD--in its analysis and not floppies
or other media. But that shouldn't skew the results, as floppies and Iomega-style drives are
losing ground to the CD club.
While IDC expects unit shipments to reach 218 million in 2003, revenue will grow at a
meager 1 percent compounded annually.
Several factors are hurting manufacturers, particularly the growing commodity status of
CD-ROM drives, which no longer command the high prices they once did. The drives
typically cost PC makers as little as $35 or less compared to $10 for the ubiquitous floppy
and $165 for CD-RW drives, according to Jim Porter, principal analyst at Disk /Trend, a
market researcher covering storage.
The only reprieve from declining prices appears to be damage caused by the Taiwan
earthquake. The shut-down of some silicon foundries has lead to a temporary shortage of
controller chips, according to the Taiwan Computer Association. The effects, however, will
likely be temporary.
"It's a difficult market in that the systems these things are built into keep declining in
price," commented IDC analyst Robert Amatruda. CD and DVD drives account for 82
percent of unit volume in the removable optical storage market but only 64 percent of its
value, according to IDC.
The standard CD format will peak this year, with 94.9 million units shipped, according to
Disk/Trend. CD drive shipments will decline to 82.8 million next year reaching 30.3 million
units in 2002, according to Disk/Trend.
DVD drives, by contrast, will pick up dramatically from 13.4 million units shipped this year
to 92.8 million in 2002, according to Disk/Trend.
The fastest growing segment will be recordable CD and DVD drives, led by CD-RW.
Recordable drives are expected to hit a compounded annual growth rate of 47 percent,
according to IDC. Besides giving users an ability to record, an increasingly popular
application with the explosion of MP3, these drives can also play standard CDs.
"Certainly CD-RW is coming on strong, and that is largely due to the interchangeability of
the media," said Amatruda. "The software has gotten easier and better to use and the
media is almost at a giveaway price."
But CD-RW will likely face a similar fate as CD-ROM drives with lower-cost producers and
greater production drive down prices. About 10 new CD-RW manufacturers appeared in the
last year, said analysts.
CD-RW drives averaged $165 this year, down from $204 in 1998, according to Disk/Trend.
Drives are expected to go for about $135 each next year.
Lower prices mean greater demand, particularly as CD-RW finds niche uses, such as for
storing digital photography and compiling music CDs. But greater demand and more
lower-cost producers also mean less revenue, said analysts, who predicted 10.5 million
CD-RW drives will be shipped this year and 17.3 million next year.
"What's important is the prices are coming down to a level where CD-RW is much more of
a discretionary purchase for a lot of folks when they get their build-to-order PCs," said
Porter.
Next on the horizon, some manufacturers are counting on DVD recordable drives, which
still command premium prices, to help bolster revenues as their volumes pick up and
CD-RW becomes a commodity product.
"We see DVD-RAM as one of our fastest growing drive formats," said Dana Berzin,
marketing manager for Panasonic's mass storage marketing division. DVD-RAM is one of
two recordable DVD formats vying for market dominance.
Panasonic predicts drive makers will sell 500,000 DVD-RAM drives this year and 1.3
million next year, reaching 6.7 million units in 2002. While this is in line with analyst
projections, DVD-RAM prices are likely to fall dramatically as they replace CD-RW drives
in a few years, they said.
For removable drive makers, the only solution maybe squeezing profits out of operations
rather than sales. Those that can produce better drives cheaper are the mostly likely to
ring profits out of pennies, said analysts.
They point to Seagate Technology, the world's largest disk drive maker, which
yesterday beat analyst expectations by 14 cents a share. Seagate has streamlined
operations such that it makes 25 percent more drives with 27 percent fewer
employees than it did two years ago.
"There's a lesson there for others to follow," said Porter.
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