Consolidation in the Hard Disk Drive Industry Leaves Future Uncertain

by Ketaki Sood
Larta Research Economist

Coming Soon! Larta's White Paper on the Future of the Hard Disk Drive Industry. Advice that's objective, honest, and provocative. Expect it from Larta.

The hard disk drive (HDD) industry has witnessed dramatic structural change in the last few years, with increased levels of consolidation and restructuring activity taking place in the industry. The merger of Maxtor and Quantum, a deal estimated at $2.3 billion, took place in 2001. In 2000, Seagate split into two parts, with the hard drive group becoming a private concern. In April this year, IBM and Hitachi reached an agreement to combine their disk drive operations into a join venture, the majority (70%) of which will be owned by Hitachi.

The HDD industry has been plagued by falling profit margins and consolidation has enabled disk drive manufacturers to benefit from economies of scale and more cost effective manufacturing. Such consolidation, however, does cause concerns that the HDD market is being left with too few vendors; a situation that can lead to supply shortages in the future and that could impact the HDD industry's growth into new markets. Low profit levels are already making it difficult to undertake the capital investment required for advances in technology and to break into new and emerging markets. Industry analysts and leaders, however, strongly feel that the industry cannot continue to operate without structural change, as low prices and declining profit margins have taken their toll on hard drive manufacturers.

Coming next week from Larta: The Hard Disk Drive Industry: Overview and Future Outlook