SOURCE: Rothman Research

Rothman Research

May 24, 2010 08:06 ET

The HDD Industry's Future

JOHANNESBURG, SOUTH AFRICA--(Marketwire - May 24, 2010) - www.rothmanresearch.com - The first quarter 2010 earnings season has been a good indication that the economy is making a slow but steady recovery. One sector that has dynamically bounced back as soon as consumer spending started to pick up is the technology sector. Within the technology sphere, the HDD (Hard Disk Drive) industry is one that is currently showing strong bullish trend as consolidation and burly quarterly profits make the headlines. Industry experts anticipate that revenue growth for digital storage will be in an uptrend for the whole of 2010 and possibly in the first half of 2011. Two key industry players set to take advantage of the increasing demand for HDD are Seagate Technology (NASDAQ: STX) and Western Digital Corp. (NYSE: WDC) which together account for nearly 60% market share.

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Seagate and Western Digital have had some great runs in the technology sector even when the recession was still actively nagging the U.S. economy last year, and now that hard drive demand outlook is rebounding these two hard-disk drive makers are looking forward to solidify their market presence both domestically and internationally. With the recent waves of consolidation sweeping through the digital storage, HDD makers are now few in numbers but competition remains healthy and fierce. Seagate has the edge in the space with over 50% share in high performance disk drives. The company also has a well-built balance sheet with its cash to debt ratio in the green. Seagate has actively been reducing its debts.

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Whilst Seagate upholds the upper hand in the high performance disk drives market, Western Digital has been vigorously striving for additional market share in the last few years. The HDD maker recently beat analysts' revenue forecasts when it announced its fiscal 3rd quarter revenue of $2.6 billion and a profit of $1.71 per share. Western Digital maintains a rock solid balance sheet of $2.4 billion of net cash.

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With few contenders left in the HDD industry, the key for long-term growth remains M & A activities. This is where companies with strong balance sheets can make a difference. It is true that demand outlook for HDD is on the rise, and that the 2010-2011 period projects to be favorable for the industry, but analysts believe that HDD market attained its optimal in 2008. Hence, there is a growing assumption that the current HDD market is heading towards extinction within 10 years, giving way to a whole new concept of storage. Strategic partnerships and M & A activities within the industry will have to be not only been efficient in today's market but it will also have to be relevant in the future. 

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