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Continued Pricing Power in Store For Data Storage?

Unit pricing and shipment volumes in the HDD industry is largely cyclical. that of course is no secret. That cyclicity, simply stated, is that unit growth rates Q over Q (and ASPs as well) decline in the first half of the calendar year and increase in the second half. This has led to more intense competitive price inititiatives during the softer first half, sometimes excessively so. Those initiatives lose their attraction as the second half buying winds up and more market is available. Trend Focus (trendfocus.com) recently provided a study to it's clients, based on reviewing quarterly unit shipments (across all models) since 1998, by quarter. The swings can be quite pronounced. For example, shipments rose 22% in CQ3 of 2003, and fell 8.2% (QoQ) in CQ1,04. In CQ1-2007 shipments declined %5.11 from the previous quarter. In CQ2-2007 the decline softened to -%1.26. The mean forecast for CQ3 (from several forecasters) is that unit demand will grow 17%. Mobile units are expected to outpace that at 23% Q over Q. We would have expected to see some aggressive pricing in 2.5 ich drives, expecially those at the higher capacity points (250GB). That hasn't happened norappeared to have happened, at least yet. We would also have expected to see continued aggressive pricing in 3.5 inch desktop and CE (DVR) Models. That also does not appear to have happened. In fact certain capacity points in the 3.5 inch sector are getting hard to find and in at least one mfr's case they are currently on allocaton. In the excerpts from conference calls you used above, we would note that WD seems to be saying that they expect the heat on pricing to cool off somewhat in CQ3 as buyers opt for assured and steady supply so as not to threaten their time critical build plans. Seagates comments are, while admittedly more circumspect, suggest that they are planning for continued price pressure from the competition as a matter being conservative, as they have no control over competitor';''s behavior in pricing. Since both those statements were made however, it has been pretty clear in the channels that pricing has not been as aggressive in CQ2. In their most recent pricing survey, Avian Research notes that pricing for 100GB 7200 RPM mobile drives has risen .4% week over week. TYhe 160GB 5400 RPM SATA 2.5 inch has risen 1.2% in the same period. I agree that in general, pricing in the hard drive market is always competitive. However, recent consolidation, coupled with the commencement of seasonal higher demand, suggests that, contrary to any imminent decline in pricing power, the industry should be poised for near term strengthening in pricing power, at least through the next two quarters. To draw any real conclusions from this one would have to review and understand operating efficiencies especially opex, time-to-volume on new products, and product mix shipped. Two brands of HDD targeting the same performace and capacity, have little in the way of differentiation. Yields in the factory, COGS, time-to-volume, and ROI on Capex is what will set apart a particular vendor.