Hard drive horse race between Western Digital, Seagate heats up

WD grabbed market share from its arch rival in Q1

Western Digital Corp. in the first quarter of 2010 shipped the most hard disk drives (HDD) of any storage supplier, surpassing arch nemesis Seagate Technology for the first time ever on a quarterly basis, according to market research.

Western Digital shipped a record 51.1 million HDDs in the first quarter, according to iSuppli Corp. and IDC, representing a 3.2% increase from 49.5 million in the fourth quarter of 2009. Seagate shipped 50.3 million units in the first quarter of 2010, up 0.8% from 49.9 million drives shipped during the previous quarter, iSuppli said.

Because Seagate serves more of the enterprise-class data center market with higher end drives, it continued to lead all other hard drive manufacturers in revenue from hard drive shipments with $3.1 billion for the quarter, compared to Western Digital's $2.64 billion, said Fang Zhang, analyst for storage systems at iSuppli.

"In comparison, Western Digital employed a lower-cost business model that translated into reduced Average Selling Prices (ASP) and less revenue -- but higher unit shipments," Zhang said in a statement.

Market research published earlier this month from IDC, showed similar results, but its research director for hard disk drives, John Rydning, said the two companies are so close that it's hard to determine just who's ahead at this point. "They've been in this virtual tie for almost a year now," he said.

Over the long term, however, Western Digital has steadily gained ground against Seagate, Rydning said. For example, in 2005, Seagate claimed two-thirds of the combined revenue of the two companies.

"Today, from revenue perspective, it's about a 4% difference," Rydning said. "There's been a closing of gap over time."

Seagate did not immediately respond to a request for comment.

After Seagate, the top hard disk drive vendors in the first quarter were Hitachi Global Storage Technologies, Toshiba/Fujitsu and Samsung Electronics Co. Ltd. While the three companies maintained their sales rankings from the previous quarter, Hitachi's shipments saw the most growth -- 13.9% during the quarter -- while both Toshiba/Fujitsu and Samsung experienced declines in HDD shipments.

Western Digital surpassed Seagate in shipping two classes of drives: the 2.5-inch mobile drive and the 3.5-inch desk-top drive, according to Rydning. "The 3.5-inch desktop is probably the more significant one," he said.

Western Digital was able to pass Seagate for several reasons, not the least of which is that both companies now make more of their own components, allowing them greater economies of scale to cut manufacturing costs.

For example, Western Digital acquired HDD component manufacturers such as Read-Rite Corp. in 2003 and, more recently, Japan's HOYA Corp.'s magnetic media operations.

Western Digital has also exerted more control over manufacturing costs, allowing it to be more competitive on pricing. And it's been been more successful in the consumer storage market, Rydning said.

"While the low-cost model might cost Western Digital some revenue, that same approach will be the company's point of leverage in its quest to pick up more business so that it can undermine Seagate," Zhang said.

According to Zhang, which company ships the most hard drives will depend on competitiveness in the market, new offerings, keeping existing business, penetration of new markets and control over demand and supply.

iSuppli said that several HDD vendors plan to increase their capital spending. Western Digital, for instance, will spend $1.2 billion during the next five years on its plants in Malaysia -- considerably more than the $650 million to $750 million the company allotted in 2010, iSuppli said.

"Likewise, increased capital expenditures have been announced by the likes of Toshiba Corp., Samsung Electronics Co. Ltd. and Hitachi Corp.," Zhang said, adding that the extra spending will help the industry balance supply and demand this year.

Recently, Seagate fired a shot across the bow of all its competitors with a new hybrid drive, which combines 4GB of NAND flash chip capacity with hundreds of gigabytes of traditional spinning disk capacity. The NAND flash memory acts as a low-cost cache, speeding up the operating system and boosting application launch times.

Rydning, and even Seagate, admit that the new 2.5-inch Momentus XT drive fits only a niche market of high-end PC and notebook users. However, Seagate has also said it plans to market the drive to the average consumer.

"I'd argue, that if you look at the overall transition from desktop to mobile computing platforms, people had to pay a premium in order to make that transition," Rydning said. "If buyers become aware of the fact that [the hybrid] drive improves overall system performance on mobile computing platforms, they may be willing to pay a premium for that, too."

Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed . His e-mail address is lmearian@computerworld.com.

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