Seagate Technology Inc’s acquisition of Maxtor Corp has triggered an all-out battle for market share in the hard disk drive (HDD) business, spurring an industry-wide price war in the second quarter, according to iSuppli Corp.
“Following the acquisition in the second quarter, Seagate projected it would garner half the market share previously owned by Maxtor, said Krishna Chander, senior analyst for storage at iSuppli. “This meant the remaining half was up for grabs, spurring a flurry of activity as the major HDD suppliers vied for a piece of the pie.
“To gain a slice of this share, each supplier became aggressive with its pricing, causing low-end desktop computer HDDs and some notebook drives to experience extreme price declines of 5 percent to 7 per cent compared to the first quarter. These severe drops affected prices for almost all HDDs across the board,” Chander noted.
It did not help matters that the market experienced a period of overproduction in the second quarter, further aggravating the price drops, Chander added. The second quarter saw supplies exceed demand by more than typical levels.
iSuppli believes these price wars may continue until the end of the year, when the market-share situation stabilises. With the holiday season approaching, every HDD supplier is viewing Maxtor’s remaining share as a key opportunity to increase its sales to key OEMs.
Due to the Maxtor acquisition, leading HDD maker Seagate achieved a 5.1 per centage point market-share gain in the second quarter compared with the first. Seagate accounted for 34.1 per cent of the 98.6 million disk drives shipped worldwide in the second quarter.
Because Maxtor remained an independent entity up until May 18, iSuppli ranked the company in its second-quarter market share estimate. With only a half quarter of revenue under its belt, the company managed to eek out a mere 3.8 per cent share, down from 11.9 per cent in the first. Even achieving this amount of share was remarkable, given the company has been facing customer uncertainty regarding the continuation of its product lines.
Number-two-ranked HDD maker Western Digital Corp (WDC) upped its share to 19.5 per cent in the second quarter compared to 18.5 per cent in the first. Hitachi Global Storage Technologies (GST) easily held onto its third-place ranking with a 15.1 per cent share, up from 14.4 per cent in the first quarter.
Samsung Electronics Co Ltd climbed into fourth place in the second quarter, up from fifth in the first quarter, with a 10.5 per cent share of HDD unit shipments, up from 8.6 per cent in the first. In contrast, Toshiba America Inc opted to ship fewer drives in the face of severe price drops.
iSuppli’s market share rankings for HDD suppliers in the second quarter are presented in the table below and attached.
Evidence of the market share grab could be seen in the HDD makers’ second-quarter results, which revealed falling average selling prices (ASPs), rising inventories and shrinking gross margins for some suppliers.
Seagate said the gross margin for its own-branded products amounted to 23.4 per cent in the second quarter.
However, with the newly acquired Maxtor’s margin at negative 12.9 per cent, Seagate’s overall margin was diluted to 18 per cent. Seagate reported an ASP of $75 for the second quarter, noting its own products had an ASP of $77, but that Maxtor’s were in the $65 range.
Seagate’s combined net income dropped in the second quarter to a mere $7 million. Seagate also ended up with an unusually large inventory of finished goods of $556 million—70 per cent of which were Seagate products. The company decided to hold off on shipments of these finished products pending the resolution of the ongoing price war.
WDC reported a gross margin of 18.8 per cent, down slightly from 19.3 per cent in the first quarter. However, the company managed to increase its net income to $120 million, up $17 million from the prior quarter.
Hitachi GST, while improving its share slightly, reported a net loss of $112 million due to falling prices for HDDs. Fujitsu Co Ltd saw no change in its share and achieved revenue of $650 million, up 10 per cent from the second quarter of 2005. Net income breakouts were not available for the non-US vendors, ie Hitachi and Fujitsu.
For more information, visit www.isuppli.com
"