1Q03 Update: Global HDD Forecast,

Transcription

1 Forecast Analysis 1Q03 Update: Global HDD Forecast, Abstract: The fourth quarter of 2002 in the hard disk drive industry was characterized by a return to double-digit sequential and annual unit volume growth in all market segments, and a rare increase in the quarterly average selling price. By John Monroe Strategic Forecast Statements Substantial changes in consumer and corporate IT spending will not begin to occur until mid There may be no significant global economic recovery in 2003 or Hard disk drive (HDD) shipments to unbranded, whitebox PC vendors will continue to expand at the expense of the branded players. Demand from new consumer markets will be the strongest driver of unit-volume growth in the HDD industry during 2003 and Recommendations Vendors must build with extreme caution in the face of growing yet inconsistent demand. To ensure that industry revenue remains above $19 billion, vendor sales executives must responsibly scrutinize all price reductions. Publication Date:27 February 2003

2 2 1Q03 Update: Global HDD Forecast, Forecast Overview The HDD market consists of mobile-, desktop- and enterprise-class products that are used primarily in handheld devices, notebook PCs, desktop PCs, servers and storage systems. New consumer electronics and other non-pc markets are also emerging. The tables included use the following definitions: Unit shipments The number of new drives shipped by original HDD manufacturers in response to bona fide purchase orders, expressed in thousands of units. Factory average selling price (ASP) The estimated average factoryexit selling price in U.S. dollars of HDD products sold directly by the drive makers to original equipment manufacturer (OEM), distribution and retail customers. All estimated average factory-exit selling prices reflect only the price of the drive itself and do not include the price of enclosures, controllers, adapters, software, cabling, or other value-add items that are not embedded in the drive. Factory revenue: The factory ASP multiplied by unit shipments, expressed in millions of U.S. dollars. In the face of continuing economic uncertainty, Gartner Dataquest has developed best case, most likely and worst case forecast scenarios for the HDD market, which are consistent with other market assessments featured in quarterly Spotlight articles. Changes Compared to Previous Version Notwithstanding the threat of war on multiple fronts which continues to complicate the global economic climate and delay any reasonable hopes for fiscal recovery the HDD industry set a new shipment record in the fourth quarter of 2002 in response to robust demand from all channels. Mobile, desktop and enterprise shipments exhibited double-digit sequential and annual increases for the first time in many quarters. The new quarterly record for the industry (just over 61 million units) eclipsed the old record (54.8 million units, set in the fourth quarter of 2001) by 11.2 percent. The new annual record for the industry (219.6 million units) eclipsed the old record (199.5 million units) by 10.1 percent. Despite record shipments, inventories remained mostly under control. And, the industry managed an astonishing change for the better by increasing the ASP to $89 in the fourth quarter, up from $84 in the third quarter. The global economy did not improve in 2002, but the HDD markets showed a surprising and widespread resiliency. Although the fourth quarter was unexpectedly strong, there have been only minor near-term forecast changes in terms of overall unit demand and projected revenue. Based on the exceptional fourth quarter in 2002, the worst case 2003 scenario now reflects slightly greater units and revenue, 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 27 February 2003

3 but the most likely and best case scenarios for 2003 remain in the same range estimates have been added to this quarterly report for the first time. 3 Forecast Scenario Commentary Storage market drivers and inhibitors have changed little in recent years. Drivers include the proliferation of e-commerce and data warehouse applications (which have decelerated in recent years but will continue to drive long-term growth), the corporate tendency to save everything, explosive Internet use, , mobility and the increasing digitization (photographic and otherwise) of all cultural artifacts. Inhibitors include security concerns, relatively slow and expensive pipelines to move massive amounts of infotainment data to consumers, and a plateau in corporate desktop needs for storage. The drive makers can deliver more than adequate capacity for most traditional markets. Hardware performance has exceeded software requirements in many IT environments The HDD industry suffered unusual annual declines in three of the four quarters of In 2002, the industry displayed double-digit annual shipment increases in all four quarters. Total shipments of million HDDs exceeded best-case expectations but, despite a healthy desktop HDD price stabilization in distribution channels from July through December that helped Seagate, Maxtor and Western Digital to report substantial earnings in the fourth quarter, revenue fell below initial estimates. Mostly static demand for enterprise-class HDDs and growing demand for entry-level desktop products caused the ASP to fall to $89 for the year, $3 less than the worst-case initial forecast of $ The best-case shipment scenario in 2003 will depend on the recovery of traditional PC and storage systems markets in conjunction with substantive increases in new non-pc markets. Greater-than-anticipated growth in legacy or emerging markets could result in a best-case scenario. The most likely shipment scenario foresees moderate growth in legacy markets combined with relatively brisk growth in emerging markets. The worst-case shipment scenario would involve saturation in the global demand for new PCs and static enterprise storage system markets, combined with tepid growth in new non-pc arenas. As industry consolidation proceeds Gartner Dataquest predicted that, as in 2002, there will be further significant consolidation of HDD suppliers in 2003 chaotic quests to maintain or regain market share could result in precipitous and unnecessary ASP declines to below worst-case expectations As in 2003, various shipment scenarios in 2004 will largely depend on the rate of growth in traditional PC and storage systems markets. However, 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 27 February 2003

4 4 1Q03 Update: Global HDD Forecast, the new non-pc markets for HDDs led by the major consumer audio/visual applications (game stations, personal video recorders and portable jukeboxes) should begin to show enormous growth in If these new markets do not begin to gain traction in 2004, then shipments of more than 260 million units are unlikely. On the other hand, if these new markets do gain great traction in 2004, the best-case scenario of 308 million units may prove to be a conservative guess. Revenue scenarios will depend on the degree of fiscal wisdom involved with the drive makers' market management combined with the relative demand mix of expensive, enterprise-class products and low-cost, entry-level HDDs. In Table 1 through Table 6, shipments and revenue are actual for Table 1 Worldwide HDD Forecast Revenue (Millions of Dollars) Actual Revenue ($M) 5,128 4,466 4,513 5,412 19,519 ASP ($) Best Case (Annual ASP of $85) 5,328 5,159 5,407 5,904 21,799 Most Likely Case (Annual ASP of $82) 5,079 4,692 4,882 5,134 19,786 Worst Case (Annual ASP of $79) 4,578 4,207 4,514 4,722 18,020 Best Case (Annual ASP of $81) 5,984 5,861 6,312 6,722 24,880 Most Likely Case (Annual ASP of $77) 5,115 5,021 5,317 5,731 21,184 Worst Case (Annual ASP of $69) 4,523 4,183 4,282 4,354 17,341 Table 2 Worldwide HDD Forecast Revenue, Sequential Growth (Percent) Actual Revenue Sequential Growth Best Case Most Likely Case Worst Case Best Case Most Likely Case Worst Case Gartner, Inc. and/or its Affiliates. All Rights Reserved. 27 February 2003

5 5 Table 3 Worldwide HDD Forecast Revenue, Year-Over-Year Growth (Percent) Actual Revenue Year on Year Growth Best Case Most Likely Case Worst Case Best Case Most Likely Case Worst Case Table 4 Worldwide HDD Forecast (Thousands of Units) Actual Units 53,325 51,405 53,889 61, ,639 Best Case 59,870 58,630 65,150 72, ,540 Most Likely Case 57,320 57,220 61,100 66, ,880 Worst Case 55,155 53,250 57,870 62, ,235 Best Case 72,980 72,360 77,930 85, ,360 Most Likely Case 66,165 65,210 69,505 75, ,190 Worst Case 61,120 59,750 62,970 65, ,810 Table 5 Worldwide HDD Forecast, Sequential Unit Growth (Percent) Actual Units Sequential Growth Best Case Most Likely Case Worst Case Best Case Most Likely Case Worst Case Gartner, Inc. and/or its Affiliates. All Rights Reserved. 27 February 2003

6 6 1Q03 Update: Global HDD Forecast, Table 6 Worldwide HDD Forecast, Year-Over-Year Unit Growth (Percent) Actual Units Year on Year Growth Best Case Most Likely Case Worst Case Best Case Most Likely Case Worst Case Gartner Dataquest Perspective In the first quarter of 2002, many IT professionals were convinced that the severe budget restraints imposed in 2001 would be lifted in the second half of In the first quarter of 2003, these same professionals seem to have come to the painful recognition that budget constraints will be an enduring fact of their fiscal life. Spending limits are inevitable, but increases in storage spending, however small, are also inevitable. Recent CIO surveys indicate that PCs, storage and storage network infrastructure rank highest on the scale of expected corporate IT expenditures in First-Quarter Demand A looming war and potential terrorist activity have generated great fears and uncertainty. There are also the general decimation of personal savings, the continuing decline of international stock markets and discouraging levels of unemployment throughout the world. Although it is hard to imagine a year of greatly increased IT or consumer spending, corporations and consumers spent considerable sums of money in the fourth quarter of After eight months of general stagnation, there was double-digit fourthquarter sequential growth in major PC accounts in the United States. This could be early evidence of the long-awaited PC replacement cycle, but it is certainly too early to be sure. Vendors report a good deal of ongoing sales activity, but Gartner Dataquest counsels caution and predicts a normal sequential decline in demand from all channels for all products in the first quarter. Usually volatile desktop pricing has remained stable, primarily because the drive makers have controlled global inventories. It should be remembered that the drive makers usually overproduce during the first and second quarters of the year. Overproduction in the first quarter will surely lead to irrational pricing in the second quarter and should be avoided at all costs this year Gartner, Inc. and/or its Affiliates. All Rights Reserved. 27 February 2003

7 General HDD Industry Outlook Gartner Dataquest sees no compelling reason to change its long-term assessments of HDD markets. Notwithstanding complete saturation in the global need for new PCs, a definitive curtailing of Internet and enterprise storage growth, and a complex failure in all emerging non-pc applications for HDDs none of which are likely scenarios there will definitely be overall volume shipment growth in various HDD markets. There was economic turmoil and uncertainty throughout 2002, and yet the drive makers managed to ship records volumes of products. This surely bodes well for future shipment growth. As for future revenue growth, revenue for the HDD industry will likely remain flat but could verge toward best-case growth scenarios if the drive makers can continue to quickly correct (and, in the future, prevent) unnecessary price erosions. Wise assessments of what is feasible and profitable must prevail as the industry struggles to contend with complex consolidations. In 2002, the drive makers responsibly raised distribution prices for desktop drives, reduced desktop HDD warranties from three years to one year (to coincide with the standard warranties offered by their major customers) and generally kept inventory levels under control during the second half of the year. Although deep, diverse economic uncertainties persist and evolving ASP and revenue dynamics remain difficult to read, the drive makers will have a chance to extend some of the wise decisions made in 2002 and generate more profitable market conditions in 2003 and Key Issue At what rate will various storage markets grow or decline? 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 27 February 2003

8 8 1Q03 Update: Global HDD Forecast, This document has been published to the following Marketplace codes: HARD-WW-DP-0432 SEMC-WW-DP-0248 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice