History (1994): IDC 1993 Storage Market Outlook for HDDs: Unit Growth Up 20%, Down 30% From 1992

The Winchester disk drive industry delivered 19.9% unit growth, modestly ahead of our expectations, largely on the strength of a strong 2H93.

This growth did not come without sacrifice – margins the lowest since 1988, revenues unchanged vs. a year ago.

The industry enters 1994 highly focused on reducing product cost and expanding revenue opportunities. In our view this is critical given the need to support an almost constant number of sizable participants. Our forecast calls for more moderate unit growth in 1994 (13%), as well as a recovery from the aggressive revenue compression experienced in the past 12 months.

1993 set a new paradigm with respect to business momentum, pricing, and product direction. Moreover, as a newly ‘mature’ industry with increasingly concentrated market shares, players are testing new strategies for growth.

We note the following specific points:
– Roller coaster year for demand: first half sequentially weak, strong second half comeback.
– At 51 million, HDD unit growth was as strong as 19.9%, although down from 1992’s impressive 29.7% rate.
– Revenues of $13.4 billion, up a mere 4%.
– Entering 1994 on allocation: industry supply reduced, old product inventory worked down, systems demand sufficient to support drive growth.
– Suppliers experienced the most aggressive price declines ever; for much of the year HDD prices declined an average of 15% sequentially.
– Recently prices have increased modestly as allocation conditions return.
– Likely trend for next 12 months calls for sequential quarter declines averaging 8%, more aggressive than historically, but better than the recent past.
– 3.5-inch HDDs leverage common architecture, but address stratified mainstream PC opportunity.
– 3.5-inch form factor dominates high-capacity space, but 9GB capacity point creates lucrative opportunity for 5.25-inch drives.
– 2.5-inch volumes grow appreciably in short height configurations.
– 1.8-inch remains a niche due to cost and capacity limitations.

HDD suppliers had high expectations for 1993. In the wake of a strong 4Q92, industry build rates grew to more than 13 million units per quarter up from about 9 million at the beginning of the year.

What followed was 2 sequential quarter of declining HDD unit shipments, a relentless price war, and a sharp rise in inventory without a downtown in systems demand.

We estimate that the publicly held suppliers will lose close to $575 million for the year (including write-offs) vs. posting a profit of about $535 million in the year previous.

With 3 prior down cycles for comparison, we note several important parallels; specifically, oversupply as a common catalyst for entering a down cycle. Notably, in this most recent cycle growth in bricks and mortar was virtually nonexistent; rather, yield improvements fueled capacity growth.

Because of the ‘new seasonality’, we regard the next 6 months with some caution; it is unreasonable to expect the current allocation conditions to persist much beyond the first quarter. Suppliers are currently ramping production to meet demand.

Still, the risk associated with a more balanced flow of business is substantially less than that experienced a year ago given:
– Lower HDD inventory levels (in the channel and with suppliers).
– Corporate infrastructures ‘right sized’ to lower volumes.
– New HDDs designed to be competitive in a more price aggressive environment.

This article is an abstract of news published on the former paper version of Computer Data Storage Newsletter on issue 76, published on May 1994.