In a bid to tap the rapidly growing ultrabook and tablet markets, Seagate Technology (NASDAQ:STX) unveiled its thinnest ever hard disk drive (HDD) at the Computex computer show in Taipei last week.  The 5 mm thin and just 3.3 ounce heavy 500 GB HDD is designed to save nearly 25% space than its previous generation 7 mm disk drive. The launch came hours before the announcement from its largest competitor Western Digital of the thinnest ever 1 TB HDD measuring 7 mm.  Below we take a detailed look at the event and analyze how it can give Seagate an edge over Western Digital.
New Drive Places Seagate Well In The HDD Market
PC and notebook demand is expected to revive in the second half of 2013 as consumers who have been delaying purchases could start spending more as the economy recovers. ((Fitch Lifts Seagate’s Ratings into Investment-Grade Territory, WSJ, May 01 2013)) However, within the whole PC and notebook market, ultrabooks (ultra-thin notebook computers) are expected to lead the growth with growing consumer preference. Ultrabooks were launched in 2011 by PC makers as a response to cannibalization from tablets. However, the sales failed to match initial expectations due to higher average prices. Most ultrabooks use solid state drives (SSDs) that allow for faster data access on a lower processor and are very thin compared to HDDs. However, on average, SSDs are at least twice as expensive (per GB) as conventional HDDs. This cost differential caused price-conscious retail consumers to stick to devices with HDDs to meet the storage requirements from the growth in high definition digital content. A large section of consumers still prefers capacity over performance.
- Can Google Home Prove To Be Smarter Than Amazon’s Echo?
- How Will Different Rig Count And Average Daily Rate Forecasts Impact Transocean’s Contract Drilling Revenue In 2016?
- How Sensitive Is Disney’s Stock Price To Number Of ESPN U.S. Subscribers?
- What Will Royal Dutch Shell’s Revenue & EBITDA Composition Look Like 5 Years From Now?
- Why Do China’s Steel Exports Remain At Elevated Levels?
- How Sensitive Is CBS Stock Price To Cable Network’s Revenues?
However, with the new hybrid drives (SSHD, a combination of SSD memory and conventional HDD), ultrabooks are expected to see robust growth in demand. SSHDs are gaining traction as they have performance comparable to SSDs while being relatively cheaper. For the next couple of years, SSD production costs are likely to remain high, paving the way for the higher adoption of SSHDs. But the drawback with SSHDs is that they are still bulkier than SSDs, which limits how thin ultrabooks with SSHDs can get. While both HDD market leaders Seagate and Western Digital have launched their own versions of SSHDs, Seagate’s new ultra-thin drive can provide an advantage over its competitor. PC makers would certainly prefer the thinner and lighter disk drive to narrow the gap with tablets. Further, Seagate has also given the new drive a standard SATA connector while making it reverse-compatible with 7 mm and 9.5 mm drive enclosures. This will enable Seagate tap demand from the disk replacement market as well.
The storage industry has gone through a consolidation phase after being hit by a slowdown in PC sales and the introduction of SSDs. While Seagate bought Samsung’s HDD business in December 2011, Western Digital followed its path by acquiring a relatively larger player in the market, Hitachi GST, in 2012. The latter acquisition brought Western Digital a number of promising products. We therefore estimate a decline in Seagate’s HDD market share from 38% in 2012 to below 30% by the end of our forecast period. However, the new ultra-thin drive could actually help the company maintain/improve its share in the HDD market. This consequently will trigger upside to our price estimate as the PC, tablet and laptop HDDs division is the largest division of Seagate, according to our analysis and constitutes nearly 40% of our price estimate.
Potential Entry Into The Rapidly Growing Tablet Market
Currently, all tablets use solid state memory chips as their primary storage memory as 7 mm and 9.5 mm HDDs are too bulky to be used in tablets. Seagate is hoping to make inroads in the tablet market as it demoed its ultra-thin HDD in an Android tablet. While there will be a trade-off in performance and battery life in tablets compared with those using SSDs, Seagate’s new ultra-thin HDD will enable PC makers to introduce hybrid disks similar to ultrabooks in order to counter performance issues while increasing internal storage capacity. Any success in the tablet market will lead to further upside in our price estimate as we estimate that tablet sales will outstrip notebook and netbook sales by the end of our forecast period. However, we will wait for additional feedback on the hard disk’s use in tablets before updating our model.
- Industry Giants Line Up for Seagate Ultra-Thin 5mm Hard Disk Drive, WSJ, June 03 2013 [↩]
- WD(R) Delivers World’s Thinnest 1 TB Hard Drive, WSJ, June 03 2013 [↩]