Hard drive makers face challenge from tablets
LOS ANGELES (Reuters) - Hard drive makers like Seagate Technology and Western Digital Corp could experience slower growth as more and more consumers swap PCs for tablets, but they shouldn't be counted out.
With Apple's iPad and tablets from a host of others -- from Hewlett-Packard to Research in Motion -- poised to take market share from PCs in coming months, Seagate and others are scrambling to adapt to a future where fewer consumers will tote laptops, and tablets use flash memory instead of hard drives.
Still all is not negative for hard drive makers: Unit sales are expected to rise nearly 17 this year, many tablet users may want a level of data storage that only hard drives can provide and a slimmed-down hard drive industry has become increasingly
adept at managing inventory.
Kaushik Roy, an analyst with Wedbush Securities, said the threat from tablets is very real and that it has started to be priced into hard drive stocks in the past two months.
"We don't think all of it is priced in," Roy said. "People haven't really realized the extent or the depth of the situation."
"You've got to believe that some people who would have bought a laptop before are now going to move to the tablet."
Last week, Research In Motion Ltd said it plans to release a tablet called the PlayBook in early 2011, the latest addition to an already crowded field dominated by Apple's 3 million-plus selling iPad.
Tablet sales are likely top 15 million units this year and balloon to more than 48 million units in 2011, said research firm iSuppli. It said 18 percent of netbook shipments are at risk of being lost this year.
The strength of the tablet market could cause a 2 percent to 3 percent loss to global hard drive shipments in 2010, according to research firm IDC.
Roy estimates that sales of tablets could shave 10 cents to 12 cents off the $2.11 per share that analysts on average expect Seagate to earn in calendar 2011, and trim 20 cents to 25 cents from the $3.95 per share Western Digital is expected to earn.
Unlike netbooks and notebooks, which generally use hard drives for storage, tablets use flash storage manufactured by companies.
Flash is considered more rugged and faster than hard drive technology, which manufacturers view as an advantage for tablets, which need fast boot times and can easily be dropped.
IDC still expects total hard drive shipments to rise 16.7 percent to 650 million units this year, because of heightened need for storage for everything from security videos to business data. But next year, amid an overall increase in hard drive shipments, tablets could cause a 3.8 percent drag on shipment growth, said Fang Zhang, an analyst for iSuppli.
The company with the most to lose from tablets may be Hitachi Global Storage Technologies, a unit of Japan's Hitachi Ltd, because a large share of its hard drives go to notebooks and netbooks, Roy said. Western Digital has the second-highest exposure, followed by Seagate, he said.
The bottom two hard drive companies are Toshiba and Samsung Electronics Co Ltd. Together, the five main competitors are better able to manage inventory to meet demand for hard drives -- which are largely a commodity product -- than when there were dozens of competitors in decades past.
Longer term, uncertainty persists from tablets, but some argue that there is an opportunity for hard drive makers to continue to play in this market.
Seagate and Western Digital expect some future tablets to sport built-in hard drives, taking advantage of the lower cost and higher capacity of hard drives compared with flash storage.
Also, just as RIM's PlayBook will have a USB port, the hard drive industry expects that to be a feature on many future tablets, even though it is missing on the iPad.
"Everything with a USB port allows me to sell them (the consumers) external storage," said Rich Rutledge, senior vice president of marketing at Western Digital.
Seagate views tablets as a "net positive."
"The reason why is because these devices have very limited on-board storage and they will ultimately have to access external storage in one or more forms, whether it is local attached, networked or cloud storage, all of which benefit Seagate," the company said.
Finally, hard drive manufacturers may move more aggressively into flash storage and could eventually provide flash storage for tablets, Roy said.
"They're already coming up with flash drives, it's just that is a market they need to target," he said.
(Editing by Edwin Chan and Steve Orlofsky)
- Washington, DC city council raises minimum wage to $11.50/hr in 2016
- Winning ticket sold in California for Mega Millions lottery: official |
- UPDATE 5-Mega Millions lottery winning tickets sold in California, Georgia -Officials
- India removes barriers to U.S. embassy as anger grows over diplomat's arrest
- China confirms near miss with U.S. ship in South China Sea
During Soviet times, Sochi gained a reputation for tolerance but the city's once vibrant gay scene has been shrinking as Russia prepares to host the 2014 Winter Games. Slideshow