Hard drive makers Seagate and Western Digital have painted a mixed view of demand. The consumer demand is weak and there are a few signs that tablets such as the iPad are hurting demand for drives. For now, these drive giants are maintaining disciplined pricing, but historically that doesn't last long.
Apple noted that enterprise customers are piloting its tablet at a rapid clip. Those moves are likely to hurt notebook sales---some employees would use tablets in the field over laptops---and that means fewer hard drives.
It was also a year of significant missed opportunity as the industry's supply/demand dynamic deteriorated as the year progressed, resulting in sharply declining ASPs with the final quarter demonstrating a year-over-year decline in industry revenue of 7% on a unit increase of 4%, and an even sharper decline in profitability.
Long term, we believe tablets and other mobile devices like smartphones are having -- are and have been net positives for the hard drive industry. During the last 30 years, whenever new devices are introduced that consume or create a great deal of rich data, like video, it has been a positive for the storage industry.
In this case, smartphones and tablets need to stream data, and a significant portion of that data will be consumer-generated content, mostly video. Therefore, as these new devices consume significant amount of data and content, users will expect the same experience that they have grown accustomed to with other consumption devices. It seems clear that in order to deliver that overall experience, the most affordable and proven solution is the utilization of disk drives as a caching device throughout the network. Whether the storage is in a NAS box, in your home, in the cloud, or in a local cloud, Seagate provides products for all those markets.
The wild card is how fast consumers will migrate from a Seagate drive that's included in a laptop to buying their own local cloud storage. There's a good reason that Seagate and Western Digital are focused on new areas. If tablets cannibalize notebooks, both of these storage players could take a hit.
Christian Schwab, an analyst at Craig-Hallum Capital, downgraded both Seagate and Western Digital. He said desktop PC units are down despite a strong corporate refresh cycle due to Windows 7. Meanwhile, tablets are a long-term threat. In any case, the hard drive industry looks like it's about to hit some turbulence.