USA: Hard disk drives (HDD) are expressing renewed optimism that business conditions have turned for the better in the second half of 2007 and will continue to improve into 2008, according to iSuppli.

In the first half of the year, prices fell by about 20 percent per quarter for select equivalent-capacity notebook HDDs, declining from slightly more than $100 in December 2006 to about $65 in early June 2007. The deep price cuts inflicted so much pain upon the suppliers that they decided to back off from the mad rush to gain market share.

"Market share alone does not fill the coffers," said Krishna Chander, senior analyst for storage systems at iSuppli Corp. "Higher profits come from identifying and positioning product lines to address emerging trends, rather than battling it out over established commodities that have little differentiation. These higher profits drive investments in future technologies, keeping suppliers competitive."

Prices for equivalent-capacity HDDs are expected to decline marginally in the 4-6 percent range in the fourth quarter.

Demand comes through
HDD shipments will grow in concert with rising PC sales in the seasonally strong second half of the year. Global PC unit shipments will rise by 9.8 percent sequentially in the third quarter and by 12.4 percent in the fourth quarter. Meanwhile, worldwide HDD shipments will increase by 15 percent in the third quarter and 11.3 percent in the fourth quarter.

Set-top box (STB)/digital video recorder (DVR) systems are expected to generate strong HDD demand in the second half of the year. Sales in this segment are expected to rise to 22.7 million in the second half of the year, up 22 percent from 18.6 million in the first half.

iSuppli estimates that global HDD shipments grew to 132.5 million units in the third quarter, up 15 percent from 115.3 million in the second quarter.

Hard times over for hard drives
In another sign that the HDD market is rebounding, both Seagate Technology LLC and Western Digital Corp. provided optimistic outlooks half way through the third quarter. In mid October, Seagate validated this outlook with very positive third-quarter results. In early November, Western Digital Corp. also reported strong results, with revenue for HDDs at $1.7 billion up 26 percent from the previous quarter.

Seagate's financials indicate it rebounded smartly from its nadir in the first quarter. The company's gross margin rose to a respectable 24.6 percent in the third quarter, up from the low of 21.3 percent in the first quarter. Seagate's margin is expected to rise by another 1 percentage point in the fourth quarter. Similarly, its revenue rose to $3.3 billion in the third quarter, up from $2.8 billion in the first quarter. The company said it expects revenue of about $3.5 billion in the fourth quarter. Western Digital increased its gross margin from 15 percent in the second quarter to a respectable 18.4 percent in the third quarter.

In a similar vein, Hitachi Ltd. reported that it had narrowed its losses in the fourth quarter and is looking forward to a small operating profit for its HDD operations.

All of three companies mentioned they either sustained or improved on their Average Selling Price (ASP) per HDD unit compared to the previous quarter.

The HDD rebound bodes well for storage products across a broad spectrum of technologies, including flash, optical, tape and finished systems. The strong demand shows applications are continuing to generate more data and content that must be stored in different formats and media.