Seagate Technology PLC (NASDAQ:STX) and Western Digital Corporation are leaders in the worldwide personal storage market with 42% and 45% of the hard disk drive (HDD) market respectively. The HDD market is however set to shrink by nearly 12% in 2013 due to the greater penetration of tablets and ultrabooks that use solid state drives (SSDs) and also because HDD prices have not fallen in spite of a recovery in supply after the Thailand floods in 2011.
Seagate and Western Digital have some offerings in the hybrid and SSD space, but this is mostly concentrated on the enterprise side to make faster enterprise storage using flash arrays. Western Digital has high capacity hybrid drives which can be used in Ultrabooks, but falling SSD prices are making it cheaper to manufacture Ultrabooks using SSD, thereby driving its adoption.
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We examine some key trends affecting these companies and the storage industry below.
The HDD market in 2012 was approximately $37 billion, but according to iHS this will decline to nearly $33 billion in 2013 and fall further to $32 billion by 2014 driven by multiple trends in the storage and PC market. 
The Shrinking PC And Laptop Market
The laptop and PC market shrunk by nearly 8% in the last quarter of 2012, mainly driven by lower IT spending and the rapid adoption of tablets and smartphones. As the PC market shrinks, we expect the sale of HDDs – the primary method of data storage in personal computers – to suffer as well. This is further driven by the adoption of tablets and smartphones as these devices do not use hard drives but use solid state memory instead. As SSD prices fall, we expect it to take market share away from HDD storage in the PC and laptop market. SSD allows for faster data access and thin form factors which will drive its adoption despite its higher pricing in the long term.
All tablet computers use solid state memory chips as their primary storage memory, and we estimate that tablet sales will outstrip notebook and netbook sales by the end of our forecast period. HDD memory is less responsive, slower and bulkier and is unlikely to find much application in tablet computers. The increasing popularity of tablet computers is the primary reason for growth in the SSD space. We estimate that tablet sales will outstrip laptop sales by the end of our forecast period, and this is a major trend shaping the storage industry.
HDD Prices Are Not Falling Despite Recovery In Supply
While hybrid drives are raising the average selling price of HDDs, the supply shock created by the Thailand floods in 2011 was the primary reason for HDD prices to spike. While supply has recovered, HDD prices remain high and this is another reason for the growing adoption of SSDs. We estimate that the average selling price for desktop and laptop HDDs in 2013 is around $46 per unit, up from its 2011 level of $40.
We currently have a $38.15 Trefis price estimate for Seagate, which is in-line with its current market price.Notes:
- Hard Disk Drive Revenue Set For Double Digit Decline This Year, www.isuppli.com, Feb 4, 2013 [↩]