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To: Sam Citron who wrote (10799)	9/12/2003 12:37:04 PM
From: Sam Citron	Read Replies (1) \| Respond to of 11057

Consumer electronics likely to boost industry demand By Mike Langberg. Mercury News 9/8/03 Larry Ellison sells software, not hard drives, and that might be why the billionaire founder of Oracle keeps embarrassing himself by saying Silicon Valley's boom days are over. Worldwide demand for hard drives could double by the end of the decade, largely because they are making a huge leap from computing to consumer electronics. The first stirrings of this transformation are happening now: digital video recorders, or DVRs, hold 30 hours or more of television programs; MP3 music players put thousands of songs in the palm of your hand; and car navigation systems display detailed road maps for any point in the United States. But this is only the beginning. Hard drives will eventually be inside almost every cable and satellite set-top box, stereo system, camcorder, video game system, mobile phone and digital still camera. The changes this will cause are profound; already, TV broadcasters are sweating over viewers who zip past commercials with DVRs. So Ellison would have a hard time dampening the mood at this week's Diskcon USA 2003 conference, opening Tuesday and running through Wednesday at the Fairmont Hotel in San Jose. The disk drive was invented by IBM engineers in San Jose in 1956, and the business is still largely based here, including three of the biggest manufacturers: Seagate of Scotts Valley, Maxtor of Milpitas and Hitachi Global Storage Technologies in San Jose, formed earlier this year by Hitachi and IBM. Demand from consumer electronics, or CE, companies is already contributing to the industry's growth. Seagate, in its 2003 fiscal year ended June 27, sold 4.7 million CE drives -- 7 percent of total production. One of its biggest CE customers is Microsoft, which puts Seagate hard drives inside its Xbox game system. Maxtor sold 1.2 million CE drives in the second quarter of 2003 alone, more than double the number of the previous quarter, representing nearly 10 percent of total production. The company's highest-profile CE buyer is San Jose-based DVR maker TiVo. ``Eventually, the CE market should be the same size as the desktop PC market,'' says James N. Porter, a longtime industry analyst and president of the firm Disk/Trend in Mountain View. The only question is how fast the CE market will grow. DVRs regularly get raves from reviewers and are beloved by their owners, but are still selling relatively slowly. Other hard-drive-based consumer products, such as Apple Computer's elegant iPod music player, are still too expensive at $299 or more to become mass-market hits. The best guess right now seems to be that demand for CE hard drives will begin to soar in two to four years, while demand for hard drives going into personal computers and corporate data storage systems will plod along with slow but steady single-digit growth. One other concern is profit margin. Despite their amazing complexity and ever-growing capacity, hard drives in the past have suffered from excessive competition that has driven prices down to the point where everyone in the industry loses money. Today, it's still a struggle for individual disk-drive manufacturers to get PC makers or buyers to care much about brand names. Seagate and Maxtor, among others, are working on technology tweaks -- such as making their drives quieter, or better able to handle very fast streams of video data -- in hopes CE companies will pay a premium. Maxtor is even starting an ``Intel Inside''-style marketing campaign to put its name on the outside of digital video recorders. But past history makes it seem likely the competition to supply CE hard drives will be so intense that profit margins won't be any fatter than in computing. Wall Street, meanwhile, isn't blind to what CE could do for the hard-drive business; Seagate and Maxtor stocks have more than doubled since the beginning of the year. As with everything else in the technology business, it comes down to timing. I've got no doubt the CE market for hard drives will be huge, I'm just not sure when it will happen. Manufacturers -- and investors -- who come to the party too early or too late will suffer; only those smart enough or lucky enough to arrive right on time will prosper. bayarea.com