4Q02 Update: Global Hard Disk Drive Forecast Scenarios,

Transcription

1 Forecast Analysis 4Q02 Update: Global Hard Disk Drive Forecast Scenarios, Abstract: The third quarter of 2002 in the hard disk drive industry was characterized by stable pricing, unexpected increases in desktop shipments, and disappointing declines in mobile and enterprise shipments. By John Monroe Strategic Forecast Statements Modest but significant growth in second-half demand will enable the hard disk drive industry to ship at least 215 million drives in Notwithstanding a relatively strong fourth quarter in 2002, truly substantial surges in consumer and corporate IT spending will not begin to occur until mid Hard disk drive shipments to unbranded, white-box PC vendors will continue to expand at the expense of the branded players. Recommendations Vendors must carefully constrain their build plans to ensure more-profitable future market conditions. Drive makers must work to ensure that industry revenue remains above $19 billion by striving to maintain best-case average selling prices even if worst-case shipment scenarios occur. Publication Date:November 13, 2002

2 2 4Q02 Update: Global Hard Disk Drive Forecast Scenarios, Forecast Overview The hard disk drive (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 herein use the following definitions: Unit shipments These are 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) This is the estimated average factory-exit selling price in U.S. dollars of HDD products sold directly by drive makers to 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: This is 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 The global economy has not improved, but the HDD markets continue to show surprising resiliency. To date, there have been only minor forecast changes in terms of overall unit demand and projected revenue. January-to-September 2002 HDD shipments approached best-case numbers (more than 158 million units). The estimated industry ASP fell to less than $88 in the second quarter, down from $96 in the first quarter. The calculated industry ASP for the first half of 2002 was only $91.7. Although ASPs were aggressive and inventories swelled in the first and second quarters of 2002, desktop HDD prices stabilized and inventories shrank in the third quarter. However, despite healthier pricing environments in certain market segments, the overall industry ASP in the third quarter of 2002 fell again, to $84, but this was primarily a result of product mix, with inexpensive desktop HDDs constituting a greater percentage of the total volume. (Sequential desktop HDD shipments increased by 9 percent, while sequential mobile and enterprise shipments fell by 6 percent and 7 percent, respectively.) The industry ASP will likely decline to $88 for 2002, down from $106.5 for Gartner Dataquest's ASP estimates for 2003 remain aggressive, but prices in 2003 should decline at less precipitous rates.

3 The industry must engage in more dedicated and concerted efforts to prevent needless price erosions in the future. A combination of worst-case ASP and unit shipment scenarios in 2003 could lead to $17 billion revenue levels not seen since 1993, when the industry shipped only 51.4 million HDDs. 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, the corporate tendency to save everything, explosive Internet use, , mobility, and the increasing digitization (photographic and otherwise) of 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 at the moment, the drive makers can deliver more than adequate capacity for most traditional markets After annual declines in three of the four quarters in 2001, the HDD industry during the first three quarters of 2002 displayed consistent double-digit annual shipment increases. Total January-to-September HDD shipments in 2002 of million units represented a 12.7 percent increase over the first three quarters of There should be strong single-digit combined growth from the PC sector and evolving non-pc markets in the fourth quarter, which means that total 2002 HDD shipments should exceed 215 million units (a most likely scenario). With double-digit growth from the PC sector and healthy holiday demand from new non-pc markets, a best-case scenario of more than 219 million HDDs in 2002 could be achieved. The worst-case shipment scenario of less than 212 million HDDs would entail a sequential and annual decline in actual fourth-quarter demand. This is feasible but far-fetched, since demand showed no signs of slowing in October 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. In Table 1 through Table 6, shipments and revenue are actual through the first three quarters of 2002.

4 4 4Q02 Update: Global Hard Disk Drive Forecast Scenarios, Table 1 Worldwide Hard Disk Drive Forecast Revenue (Millions of U.S. Dollars) Most Likely Case (ASP of $106.5) 5,606 5,015 5,069 5,137 20,827 Best Case (Annual ASP of $89) 5,128 4,466 4,513 5,407 19,514 Most Likely Case (Annual ASP of $88) 5,128 4,466 4,513 5,094 19,201 Worst Case (Annual ASP of $87) 5,128 4,466 4,513 4,641 18,748 Best Case (Annual ASP of $87) 5,150 5,107 5,664 6,386 22,307 Most Likely Case (Annual ASP of $83) 4,640 4,607 5,138 5,752 20,136 Worst Case (Annual ASP of $78) 4,118 4,048 4,571 4,961 17,698 Table 2 Worldwide Hard Disk Drive Forecast Revenue, Sequential Growth (Percent) Most Likely Case Best Case Most Likely Case Worst Case Best Case Most Likely Case Worst Case Table 3 Worldwide Hard Disk Drive Forecast Revenue, Year-Over-Year Growth (Percent) Most Likely Case Best Case Most Likely Case Worst Case Best Case Most Likely Case Worst Case

5 5 Table 4 Worldwide Hard Disk Drive Forecast (Thousands of Units) Most Likely Case 48,277 44,901 47,533 54, ,600 Best Case 53,326 51,405 53,889 60, ,370 Most Likely Case 53,326 51,405 53,889 57, ,510 Worst Case 53,326 51,405 53,889 53, ,970 Best Case 59,200 58,700 65,100 73, ,400 Most Likely Case 55,900 55,500 61,900 69, ,600 Worst Case 52,800 51,900 58,600 63, ,900 Table 5 Worldwide Hard Disk Drive Forecast, Sequential Unit Growth (Percent) Most Likely Case Best Case Most Likely Case Worst Case Best Case Most Likely Case Worst Case Table 6 Worldwide Hard Disk Drive Forecast, Year-Over-Year Unit Growth (Percent) Most Likely Case Best Case Most Likely Case Worst Case Best Case Most Likely Case Worst Case

6 6 4Q02 Update: Global Hard Disk Drive Forecast Scenarios, Gartner Dataquest Perspective In the third quarter of 2002, the drive makers 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 responsibly controlled global inventories. Although forecast ASP and revenue scenarios remain problematic, the drive makers have made a few recent decisions that could help to generate more profitable future market conditions. Fourth-Quarter Demand Given the general decimation of personal savings, the continuing decline of international stock markets and the discouraging levels of unemployment throughout the world, it is hard to imagine a year of greatly increased holiday spending from consumers. However, given the traditional excesses of the holiday season, it is equally difficult to believe that consumers will spend less money in the fourth quarter than they did in the third quarter. Diverse and deep economic uncertainties persist, demand cycles remain difficult to read and there is intense debate about corporate spending for IT products. Will business units be rewarded for not spending portions of their allocated 2002 budgets, or will the traditional "use it or lose it" syndrome generate considerable increases in corporate IT spending during the fourth quarter? Both scenarios will likely be true for different companies and departments at different times, and the net result will be a minor growth in corporate demand for HDD-related products in the fourth quarter of Gartner Dataquest predicts that consumer spending for HDD-related products will increase marginally in the fourth quarter of Gartner Dataquest predicts that significant surges in corporate HDD demand will not begin to occur until mid Mobile and desktop HDD shipments will increase sequentially by at least 5 percent and perhaps by as much as 10 percent or 12 percent in the fourth quarter of 2002, driven by increased demand from the major branded PC vendors, continuing demand from white-box PC vendors, and a traditional holiday surge in demand from non-pc markets. Fourth-quarter enterprise shipments will remain flat or increase by less than 5 percent. General HDD Industry Outlook At the moment, Gartner Dataquest sees no compelling reason to change its long-term assessments of HDD markets. Notwithstanding a 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 and it should be healthy. There were consistent double-digit annual shipment increases in the first three quarters of 2002 (a time of continuing economic uncertainty), and this surely bodes well for future shipment growth.

7 7 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. Industry profitability will depend on the continued implementation of operational cost controls, the rate of overall price decline, the timing of technology advancements and the evolving, unpredictable nature of new business landscapes engendered by further industry consolidation and, hopefully, better market management. Key Issue At what rate will various storage markets grow or decline? What are the forces influencing global storage growth?

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