Worldwide Hard Disk Drive Forecast and Analysis: Shrugging Off Storage Technology Challengers

Transcription

1 MARKET ANALYSIS Worldwide Hard Disk Drive Forecast and Analysis: Shrugging Off Storage Technology Challengers John Rydning IDC OPINION Global Headquarters: 5 Speen Street Framingham, MA USA P F Worldwide hard disk drive (HDD) shipments increased by 15.3% in 2007 to surpass 500 million units. HDD shipments in 2007 exceeded expectations because of PC market dynamics that spurred portable PC demand and subsequently mobile 2.5in. HDD demand in the latter part of the year. In 2008, HDD shipments are expected to increase year on year by 13%, even in the face of economic uncertainty in the United States. HDD demand is growing in part because cheaper HDD storage on a priceper-gigabyte basis enables digital information to be captured and stored inexpensively and easily. Nevertheless, the growth rate for HDD unit shipments is slowing. The compound annual growth rate (CAGR) for HDD shipments in this forecast is projected to be 9.2%. Comparatively, HDD shipments grew from 2002 to 2007 at a CAGR of 14.3%. The decline of HDD shipment growth rates is attributed mainly to the slower growth of large, mature end markets for HDDs and the use of higher-capacity disk drives in datacenters to combat the rapid growth of digital content. Despite slowing HDD shipment growth rates, both unit shipments and revenue in this HDD forecast iteration are higher overall than IDC's previous forecast. Key factors relevant with this worldwide HDD forecast include the following:! Flash-based solid state drives (SSDs) will reach cost and endurance thresholds that make possible increased penetration of SSDs in traditional HDD markets over the next several years. SSDs will curtail HDD demand in some markets, but the HDD industry will shrug off these and other competing storage technologies to attain consecutive years of record-setting HDD shipments and revenue.! HDD markets least threatened by competing storage technologies such as enterprise storage systems, personal storage devices (aka external attached hard disk drives), and personal video recorders (PVRs) represented 23% of unit shipments in 2007 and 35% of HDD terabytes shipped. These same markets will procure nearly 40% of HDD units that ship in 2012 and represent more than 50% of HDD terabyte shipments.! Successive generations of HDD products using perpendicular magnetic recording (PMR) technology will enable average HDD capacities to increase by a factor of nearly three times from 170GB in 2007 to more than 500GB by Filing Information: May 2008, IDC #212231, Volume: 1 Storage Mechanisms: Disk: Market Analysis

2 TABLE OF CONTENTS In This Study 1 Methodology... 1 Situation Overview 2 Hard Disk Drive Demand Drivers... 2 Hard Disk Drive Average Price-per-Gigabyte History... 3 Hard Disk Drive Industry Structure... 3 Future Outlook 9 Forecast and Assumptions... 9 Market Context Essential Guidance 44 Learn More 45 Related Research Definitions IDC System Classifications Appendix: HDD Shipments and Revenue, P # IDC

3 LIST OF TABLES 1 Worldwide HDD Shipments by Vendor, 2006 and 2007: All HDD Form Factors Worldwide HDD Revenue by Vendor, 2006 and 2007: All HDD Form Factors Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Worldwide HDD Shipments by Major Application, Worldwide HDD Revenue by Major Application, Worldwide Enterprise-Class HDD Price per Gigabyte, Worldwide HDD Shipments for Enterprise Applications by HDD Form Factor, Worldwide HDD Shipments and Revenue for PC Applications, Worldwide HDD Shipments for Portable PCs by HDD Form Factor, Worldwide HDD Shipments for Desktop PCs by HDD Form Factor, Worldwide HDD Shipments for Personal Storage Devices by HDD Form Factor, Worldwide HDD Shipments for Consumer Electronics Applications, Worldwide HDD Revenue for Consumer Electronics Applications, Worldwide Mobile-Class 1.0in. and 1.3in. HDD Analysis, Worldwide Mobile-Class 1.8in. HDD Analysis, Worldwide Mobile-Class 2.5in. HDD Analysis, Worldwide Desktop-Class 3.5in. HDD Analysis, Worldwide Enterprise-Class 2.5in. HDD Analysis, Worldwide Enterprise-Class 3.5in. HDD Analysis, Worldwide HDD Shipments by Capacity Range, : All HDD Form Factors Worldwide HDD Shipments and Revenue, : Comparison of 2007 and 2008 Forecasts Worldwide HDD Shipments Analysis: Consumption by HDD Form Factor, Worldwide HDD Revenue Analysis: Consumption by HDD Form Factor, P 2008 IDC #212231

4 LIST OF FIGURES 1 Worldwide Average Price per Gigabyte of HDD Storage, Worldwide Estimated HDD Industry TAM, Worldwide Ownership by HDD OEMs of Key HDD Component Manufacturing Capabilities and Remaining Independent Suppliers of Major HDD Components, Worldwide Ownership by HDD OEMs of Key HDD Component Manufacturing Capabilities and Remaining Independent Suppliers of Major HDD Components, Worldwide PMR and GMR HDD Shipments Share of Total HDD Shipments by Year After Technology Introduction Worldwide Commercialized HDD Leading Edge Areal Density, Worldwide Personal Storage Device Installed Base Share of Home and Small Business/Small Office PC Installed Base Worldwide HDD Shipments and Revenue, : Comparison of 2007 and 2008 Forecasts P # IDC

5 IN THIS STUDY This IDC study presents an updated look at the hard disk drive market through It is valid as of May 2008, and it provides a forecast of HDD demand both by standard HDD industry form factors and for the following HDD consumption segments: portable PCs, desktop PCs, enterprise storage systems, servers, personal storage devices (aka external hard drives), and various consumer electronics (CE) products in a variety of CE markets. For comparison purposes, the tables in this document also include historical figures for The HDD market opportunities are discussed in terms of HDD OEM unit shipments, exit factory revenue, terabytes shipped, and compound annual growth rates for the period Additionally, other metrics, trends, and relevant industry dynamics are analyzed in an attempt to provide the reader with a solid understanding of the current situation and future outlook for the worldwide HDD market. Methodology The primary HDD shipment and revenue data for this study was collected through telephone and face-to-face interviews and surveys with HDD manufacturers, component suppliers, and HDD customers. Current and historical shipment data is the sum of all unit estimates for all HDD manufacturers. The data was verified using publicly reported financial information, related computer system and consumer electronic device research, and HDD component supplier data. All unit shipment and revenue data in this study reflects shipments by HDD manufacturers to both captive and noncaptive customers. Various device and application forecasts from research groups internal to IDC are used as a primary source of data for constructing five-year HDD forecasts. Please note that this forecast reflects the HDD shipment opportunity by application only, not the forecast for the actual applications or devices themselves. Shipment lead times, inventory offsets, and other supply chain dynamics are also considered. For detailed forecasts of the various applications and devices, one should look to the specific research from the groups within IDC that produce these forecasts: Personal Computing, Servers, Storage Systems, Personal Storage, and Consumer Devices. Five-year forecast estimates for HDD units and revenue are derived in part by analyzing historical HDD trends. These historical trends are put into the context of forward-looking HDD market and industry dynamics. Assumptions for each HDD demand consumption category and various HDD form factor forecasts (see the assumptions associated with the consumption discussion for each HDD segment enterprise, PC, personal storage, and consumer devices) are also considered. All shipment, revenue, and average unit price forecast figures for are IDC estimates. Historical unit forecast and revenue data presented here are as published in prior IDC documents based on the taxonomies at the time the data was originally published. Note: All numbers in this document may not be exact due to rounding IDC #

6 SITUATION OVERVIEW Hard Disk Drive Demand Drivers The HDD industry posted record-breaking shipments and revenue for the third consecutive year in Unit shipments exceeded expectations, driven by higher than expected HDD demand from two specific markets: PCs and personal storage devices. The trend toward mobile computing is creating strong demand, in particular for mobile 2.5in. HDDs. Amplifying the mobile computing trend in 2007 were PC market dynamics that spurred portable PC demand in the latter half of the year and subsequently pushed mobile 2.5in. HDD shipments 37% higher year on year for compute markets. Aggressive HDD price erosion of mobile 2.5in. HDDs in the first half of 2007 was a major contributing factor that spurred upside HDD demand for portable PC markets. Lower mobile 2.5in. HDD prices, especially at 120GB and 160GB capacity points, enabled PC OEMs to sell a portable PC with more storage capacity at lower prices in the second half of Falling prices for other major portable PC components (i.e., microprocessors, DRAM, and displays) in the first half of 2007, coupled with a rapid decline in the value of the U.S. dollar, helped to create the perfect storm for strong portable PC demand in 2H07. Terabyte growth associated with standalone storage systems or storage shipped with servers will grow at a CAGR of more than 50%. Although SSDs will begin to be leveraged as a solution for input/output intensive applications, HDDs will continue to be the primary storage device used in these systems. Capacity-optimized HDDs designed for enterprise environments will increasingly be leveraged to provide the capacity needed for these systems. HDD shipments for personal storage devices (aka external USB-attached hard disk drives) increased by more than 70% year on year. The personal storage market is the fastest growing market for HDDs and provides HDD OEMs with an opportunity to sell branded products directly to customers through retail or etail channels. Overall, HDD shipments to computing markets posted 16% unit shipment growth in Note that IDC categorizes personal storage devices within compute markets. In contrast to the compute market, the consumer electronics market succumbed again to the vagaries of rapidly changing consumer and manufacturing OEM preferences as well as the continual evolution of devices where features and functionality are subsumed by a multipurpose device (e.g., PDA and mobile phone), moderating the need for discrete devices. As a result, HDD shipments for CE devices declined by 3% in Although HDD shipments to CE markets generally remain volatile, HDD demand has grown steadily for some CE devices such as PVRs. Shipments of HDDs for stationary CE devices grew by 13% year on year, whereas HDD shipments for portable CE devices declined by 23%. CE manufacturers are increasingly using embedded NAND flash memory for data storage in portable devices. Correspondingly, shipments of 1.0in. HDDs were discontinued in Computing markets, including personal storage devices, will continue to be a significant growth driver for the HDD industry. 2 # IDC

7 Hard Disk Drive Average Price-per-Gigabyte History A rapid transition by the HDD industry to PMR technology in 2007 enabled a 33.5% year-over-year decline of the price per gigabyte of HDDs across all form factors, the highest rate of decline since Figure 1 shows the average HDD price per gigabyte for HDD storage from 1998 to Looking ahead, we expect the price per gigabyte of HDD storage for will decline at a CAGR of -21%. FIGURE 1 Worldwide Average Price per Gigabyte of HDD Storage, HDD $/GB Growth (%) HDD $/GB Growth Source: IDC, 2008 Hard Disk Drive Industry Structure Upon Cornice's and GS Magictor's exit from the industry in 2007 and 2006, respectively, only seven companies remain that design and manufacture hard disk drives. In addition to these seven companies, three companies assemble hard disk drives under contract manufacturing agreements with certain HDD OEMs. The three companies performing contract manufacturing for HDD OEMs are:! SAE, a subsidiary of TDK. TDK's primary HDD-related business is the design and manufacturing of HDD read/write recording heads. TDK is the last remaining independent supplier of recording heads to the HDD industry IDC #

8 ! Excelstor, a subsidiary of Great Wall Technology, which is a subsidiary of China Electronics Corporation, a $16 billion People's Republic of China (PRC) government-owned conglomerate.! Union Technology Company (UTC), Thailand. UTC is a subsidiary of Saha-Union Public Company Limited. Seagate completed its acquisition of Maxtor in 2006 and subsumed Maxtor's manufacturing operations into its global operations in After several quarters of significant operating losses, Hitachi GST investigated selling a share of the company to private equity investors late in Early 2008, Hitachi announced it would proceed as an independent entity. HDD OEMs discontinued production of 1.0in. HDDs in 2007, while Seagate and Hitachi GST also decided to discontinue new 1.8in. form factor HDD products. The entries by HDD OEMs into new HDD form factors in 2007 were Samsung's announcement of a 1.3in. HDD and Hitachi GST's entry into the 2.5in. enterpriseclass segment. We anticipate Western Digital will enter the 2.5in. enterprise-class segment in Figure 2 provides a summary of HDD OEM participation in each HDD form factor and IDC's estimate of the size of each form factor in 2008 in terms of unit shipments and revenue. In 2007, TDK/SAE acquired Alps Electric to make TDK/SAE the sole remaining independent supplier of HDD magnetic recording heads. TDK/SAE also acquired Magnecomp, a suspension assembly supplier. As a subsidiary of TDK, Magnecomp will continue to supply suspensions to non-tdk/sae customers for an undetermined period of time, virtually leaving the industry with two independent suppliers Hutchinson Technology and NHK Spring. One other suspension supplier, Suncall, produces comparatively smaller volumes of suspension assemblies only for Hitachi GST. Western Digital acquired Komag, a producer of finished disk media and disk media substrates, in Subsequently, Western Digital will produce the vast majority of its own disk media, thus leaving the industry with three independent disk media suppliers. While the number of HDD manufacturers did not change, there were significant changes to the supply base of key HDD components. In general, the HDD industry became more vertically integrated in Figures 3 and 4 show the HDD industry structure in 2006 and 2007, respectively. Vertical integration does enable operational efficiencies. Vertically integrated companies often ramp new HDD technology to high volume slightly faster than nonvertically integrated HDD OEMs. Despite this operational advantage, a vertically integrated HDD OEM's overreliance on internally manufactured HDD components can limit access to HDD technology. Periodically, this can affect an HDD OEM's competitiveness to produce the highest capacity commercially available products, at least temporarily. 4 # IDC

9 FIGURE 2 Worldwide Estimated HDD Industry TAM, 2008 Units 350M 300M 250M 200M Seagate Western Digital Hitachi GST Revenue $18B $16B $14B $12B $10B 150M Samsung $8B 100M 50M Toshiba Fujitsu Excelstor Fujitsu $6B $4B $2B 0M <=1.xin. 1.8in. 2.5in. 3.5in. DT 3.5in. Ent 2.5in. Ent $0B Revenue Units Source: IDC, IDC #

10 FIGURE 3 Worldwide Ownership by HDD OEMs of Key HDD Component Manufacturing Capabilities and Remaining Independent Suppliers of Major HDD Components, 2006 Source: IDC, # IDC

11 FIGURE 4 Worldwide Ownership by HDD OEMs of Key HDD Component Manufacturing Capabilities and Remaining Independent Suppliers of Major HDD Components, 2007 Source: IDC, 2008 The three largest HDD OEMs represent 75% of all HDD shipments in 2007 (see Table 1). The three largest HDD OEMs in terms of unit market share also happen to be the most vertically integrated. One potential catalyst for further industry consolidation would be if the three largest HDD OEMs today collectively attained further market share gains. Additional industry consolidation could potentially create a tighter supplydemand balance for HDDs and serve to slow HDD average sales price (ASP) erosion. Another potential catalyst for further industry consolidation would be additional HDD OEM participation in the 2.5in. enterprise-class HDD segment. A competitive response by one of the incumbents in this segment might be to acquire the new entrant to maintain a favorable supply/demand balance IDC #

12 TABLE 1 Worldwide HDD Shipments by Vendor, 2006 and 2007: All HDD Form Factors Shipments (M) Share (%) Shipments (M) Share (%) Growth (%) Change in Share Seagate* 139, , Maxtor* 20, NA Western Digital 84, , Hitachi 70, , Samsung 47, , Toshiba 40, , Fujitsu 29, , Excelstor 2, , Cornice GS Magicstor Total 435, , * Seagate includes Maxtor share in Source: IDC, 2008 But given the degree of industry consolidation that has taken place over the past two years, we believe there will be a pause in mergers, acquisitions, or joint ventures and that major changes to the HDD industry structure are unlikely near term. From a revenue perspective, the four largest HDD OEMs represent 84% of total HDD industry revenue (see Table 2). These four OEMs all compete in the two largest HDD form factor segments, desktop-class 3.5in. and mobile-class 2.5in. With 5 6 HDD OEMs competing in the largest HDD segments, and with new entrants expected in the 2.5in. enterprise-class HDD segment in 2008, intense competitive pressures will persist. Also, managing industry supply in aggregate versus HDD demand will be an ongoing challenge. We note, however, that HDD OEMs were much more disciplined in adding manufacturing capacity in 2007 and managing supply to demand compared with prior years. Nevertheless, competitive dynamics will serve to keep downward pressure on HDD ASPs, at least near term. 8 # IDC

13 TABLE 2 Worldwide HDD Revenue by Vendor, 2006 and 2007: All HDD Form Factors Revenue ($B) Share (%) Revenue ($B) Share (%) Growth (%) Change in Share Seagate* Maxtor* NA Western Digital Hitachi Samsung Toshiba Fujitsu Excelstor Cornice GS Magicstor Total * Seagate includes Maxtor share in Source: IDC, 2008 FUTURE OUTLOOK Forecast and Assumptions Assumptions Table 3 lists the key assumptions used to generate the forecast IDC #

14 TABLE 3 Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Macroeconomics Economy IDC assumes that worldwide economic growth will be challenged in In 2009, economic growth will be slightly lower worldwide as developed economies pick up growth but emerging economies drop. By 2010, economic growth worldwide should return to normal. Moderate. A potential downside scenario for IT spending seems more likely, given the continued uncertainty over the U.S. housing market and potential declines in consumer spending. Economic strength is a key driver of mature technology markets. Nevertheless, essential hardware replacements coupled with the worldwide growth of digital information will fuel demand for storage devices despite overall economic growth. ###$$ Policy Compliance is still driving some IT spending, including Sarbanes Oxley, Basel II, and HIPAA. We believe any surge in demand for storage capacity for organizations to be compliant has passed, so we have lowered our certainty rating. High. Compliance spending could crowd out other IT spending or, conversely, it could drive up spending. Compliance requirements are pushing higher enterprise storage requirements for companies and public organizations. The effect is strong demand for HDDs for storage systems. ###$$ Corporate profits IDC's assumption is for U.S. profit growth to come in at 1% in 2008 and 3% in This is a far cry from the 20%+ profit growth in High. Company profits need to be high enough to fund information technology and communications (IT&C) initiatives. It appears that corporate profits will not be enough to fund all IT&C initiatives; new projects will require cost cutting, quick paybacks, and short implementation times. ###$$ 10 # IDC

15 TABLE 3 Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Hardware IT spending Hardware markets defied gravity in 2007; however, growth is expected to fall to under 2% in the United States in 2008 but will come in at over 5% worldwide. IDC assumes a five-year CAGR of 4.6% worldwide. Moderate. Hardware spending will continue to be about 40% of total IT spending. Near term, there will be more downside than upside in the face of a slowing economy. ####$ Pervasive computing This term refers to the proliferation of client devices and end-user or end-use devices at the network edge. By 2011, IDC expects five times as many non-pc devices to be connected to networks as PCs including Internetenabled cell phones, networked entertainment and gaming devices, automobiles, building automation systems, and industrial controllers. This doesn't even count RFID tags and sensors. IDC assumes that communicating client devices will proliferate at 5 10 times the rate of PCs installed. High. Communicating client devices will depend upon vast content depots to deliver data to the edge of networks. Only hard disk drive technology is capable of economically providing random-access highcapacity storage. The effect is strong demand for HDDs for storage systems and content depots. ####$ Green IT This is a term referring to a basket of technologies and practices designed to minimize power costs, carbon output, and hazardous waste. The major impact of green IT will be seen in technology choices based on low power, more attention to asset disposal, and some change in vendor selection. Depending on the country, voluntary adherence to green IT principals could become law. For example, power and cooling expenses are growing four times as fast as new server spend and will move from half of the value of spending on new servers to nearly three-quarters by High. The adoption of green IT products and practices should increase demand for new IT products, specifically HDDs that are proven to conserve power consumption without sacrificing performance. ####$ 2008 IDC #

16 TABLE 3 Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Demographics The aging workforce in the developed world and the growth of the workforce in lower-cost geographies will affect both the supply of IT and the demand. These may be long-term trends, but they are already manifest in the globalization of the workforce and the slow IT market growth in places like Western Europe. IDC assumes that the center of ICT supply will migrate toward Asia and Eastern Europe and, in general, will diversify. Low. The Asia/Pacific region is already the center of gravity for hard disk drive manufacturing. But IT hardware supply in general is increasingly at risk from potential political or economic disruptions. Likewise, HDD demand is also increasingly at risk as IT hardware consumption increasingly shifts to geographies outside the United States and Western Europe. ####$ HDD end-market trends and dynamics Desktop PCs Unceasing competition from portables and falling replacements have dramatically reduced desktop growth. Although the market will receive a small boost from Vista and commercial replacements in 2008 will contribute to volume, we expect shipments to decline steadily throughout most of the forecast period. High. New users, particularly price-sensitive users in emerging markets, will continue to favor desktops. Nevertheless, replacements from more experienced users will probably not support current volumes even with lower prices, new designs, and a sustained performance advantage over portables impacting 3.5in. ATA demand. ####$ Commercial shift to portable PCs The transition has been slowed slightly by cost concerns and uncertainty regarding security and the return on investment (ROI) of mobile computing. However, the transition will continue steadily and remain a key driver in system replacements. High. Portable adoption is one of the most significant market drivers and adds to demand for 2.5in. HDDs. ####$ 12 # IDC

17 TABLE 3 Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Consumer shift to portable PCs Consumers continue to migrate rapidly to portable systems based on reduced cost and the appeal of mobility. A diminished performance penalty with desktops may not last in terms of raw horsepower but will remain important in the user experience. High. Pricing trends, goodenough computing, and the benefits of wireless connectivity will continue to support the migration, further underpinning potential upside demand for mobile 2.5in. HDDs. ####$ Ultra-low-cost PCs New designs for ultra-low-cost computing may revolutionize information access and computing, particularly in lowincome segments. However, these systems could fall well short of their goals, both technically and in volume adoption. These systems hold the potential for significant market change but need to demonstrate their success before projections for their demand are incorporated into our forecasts. Low. We are assuming no impact from ultra-low-cost PCs such as the Eee PC until further evidence of their long-term success in the market. Nevertheless, should these designs eventually supplant traditional PCs it would have a negative impact on HDD demand, particularly mobile 2.5in. HDD demand. ###$$ Consumer electronics Video content remains the primary demand driver for HDD adoption in CE devices. As such, HDD storage will be leveraged mainly for stationary as opposed to portable/handheld CE devices. Handhelds and other devices are likely to integrate with PCs, supporting PC growth. At the same time, connecting CE devices to PCs will push PC content growth higher. This will place upward pressure on HDD capacities for consumer PCs. Moderate. The need for more storage capacity for consumers is likely. In the long run, multiple device options for storing consumer content will increase. As multiple devices compete for consumer attention and spending, ease of use and price will determine long-term successful CE products. ###$$ 2008 IDC #

18 TABLE 3 Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Datacenter thermodynamics Power wastage in the datacenter has a significant effect on overall "power capacity" (see Green IT assumption). High. Power wastage comes from both underutilizing servers and over-provisioning of cooling; this is being addressed by virtualization to increase utilization implementation of datacenter best practices and dynamic cooling solutions. HDDs will increasingly be evaluated in terms of watts per gigabyte, watts per I/O, and watts per rack. The implication is to accelerate demand for small form factor (SFF) HDDs, and high-capacity (slower revolutions per minute) HDDs. ##### Virtualization and system management software Virtualization will drive sales of new and more richly configured server systems. High. Systems need components with faster speeds and more capacity to achieve the projected ROI benefits of virtualization from a consolidation and utilization standpoint. This will result in demand for servers with higher storage capacities, hence a higher attach rates of highcapacity HDDs. ####$ HDD technology, trends, and dynamics HDD areal density growth Perpendicular magnetic recording technology has put HDD areal density on a new technology "S" curve. Leadingedge HDD areal density will remain on a steep improvement slope through After 2009, areal density growth will require assist technologies for PMR to sustain a 20 30% year-overyear growth rate. Overall, we assume a CAGR of 25 35% for HDD areal density (possibly higher for sub-2.5in. form factors). High. Average HDD capacities will grow quickly near term to meet storage growth demand. Rapidly increasing mobile 2.5in. HDD capacities will minimize any perceived storage capacity penalties when deciding between a desktop or a portable PC. In the long run, slower areal density growth means HDD capacity points will elongate, resulting in slightly higher component per drive requirements for key HDD components. ###$$ 14 # IDC

19 TABLE 3 Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Incursion of capacity-optimized HDDs into enterprise storage Capacity-optimized drives (mainly SATA today) have been proven reliable enough in storage arrays and will grow to more than 40% of the drives consumed in enterprise storage solutions in High. The penetration of capacity-optimized drives into enterprise storage solutions will effectively replace 30 40% margin product with midteen margin product, hence reducing industry revenue potential and profitability. ####$ Serial SCSI interface adoption Serial Attached SCSI (SAS) 3.0Gbps products have displaced parallel SCSI and achieved mainstream adoption. The storage ecosystem will migrate to SAS 6.0Gbps products beginning in Moderate. The successful introduction of SAS 6.0 technology could encourage traditional Fibre Channel (FC) system customers to shift to SAS products. This in turn could result in new enterprise HDD demand. ###$$ Technology integration HDD technology required to assist PMR will be costly and will be avoided by the HDD industry for as long as possible. Moderate. New HDD technologies will be necessary to maintain 25 35% AD growth rate. The investment requirements for new technologies such as discrete track recording or bit patterned media (BPM) or heat-assisted magnetic recording may be cost prohibitive for many HDD segments, thus limiting the ROI opportunity. ###$$ Sub-1.8in. HDDs Aggressive NAND flash capacity advancements and pricing will place tremendous downward pressure on the market opportunity for sub- 1.8in. HDDs High. There is no demand for 1.0in. or smaller HDDs. The 1.3in. HDD form factor, just recently introduced, will succumb to competition from flash memory by ##### Capitalization Components fabrication equipment Significant investments will occur for component equipment to support new HDD technology and capacity requirements. Moderate. The ROI will be challenging for component suppliers, given the rapid price erosion and the pressure to reduce bill of materials (BOM) costs. ####$ 2008 IDC #

20 TABLE 3 Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Market characteristics Degree of supplier concentration The need to invest in PMRassist technologies and the need to make investments for new manufacturing capacity will cause industry participants to again consider further consolidation. Moderate. Strategic partnerships, joint ventures, and acquisitions are possible. The necessity to invest for new HDD technology and to manage industry capacity growth may be a catalyst for further industry consolidation. #$$$$ New enterpriseclass HDD suppliers One new supplier will enter the 2.5in. enterprise-class HDD segment in Additional suppliers are considering entering this segment. Moderate. Additional suppliers to HDD segments are expected as market opportunities increase. However, additional vendors in the 2.5in. enterpriseclass HDD segment may be a catalyst for further industry consolidation. ###$$ Component supply IDC does not foresee significant component constraints through High. Without a "governor" to prevent excess HDD production, the likelihood for overproduction and rapid price erosion increases. ####$ Market ecosystem Enterprise solutions Terabyte shipments by enterprise storage solutions (servers, storage systems, and workstations) will grow at a CAGR of more than 50%. Low. Increased usage of capacity-optimized HDDs will absorb a growing proportion of this terabyte growth. ###$$ Desktop PC growth Desktop PC shipments will grow at a CAGR of approximately 6.5%, up from prior estimates of a 5% CAGR. Low. The tie ratio of desktopclass HDDs to desktop PCs is about 1.45 (currently) but will erode as the percentage of HDD shipments drops. ####$ Portable PC growth Portable PC shipments will grow at a CAGR of approximately 25%. Low. The tie ratio of mobileclass HDDs to laptop PCs is about 1.15 (currently). Growth in the whitebook market will push the tie ratio higher. ####$ 16 # IDC

21 TABLE 3 Key Forecast Assumptions for the Worldwide Hard Disk Drive Market, Market Force IDC Assumption Impact Accelerator/ Inhibitor/ Neutral Certainty of Assumption Game consoles PVRs Future generations of gaming consoles will include a mixture of units with the HDD as a standard component, whereas some will offer the HDD as an add-on option. Cable/satellite companies will continue to deploy digital video recorder (DVR) enabled set-top boxes (STBs) that rely on HDD storage High. Users recognize the value of adding HDD storage to game consoles. HDD demand for gaming markets will grow. ###$$ Moderate. Consumer adoption is expected to accelerate. Network DVR bears monitoring. ####$ Legend: #$$$$ very low, ##$$$ low, ###$$ moderate, ####$ high, ##### very high Source: IDC, 2008 Worldwide Hard Disk Drive Forecast Worldwide HDD shipments are projected to rise by 13.0% in 2008, at a 9.2% CAGR. Worldwide HDD shipments will likely exceed 750 million units by 2012 (see Table 4). Unit shipments of enterprise storage, server, personal storage devices, and personal video recorders will comprise nearly 50% of total HDD unit shipments by 2012, up from 35% of total HDD shipments in Although HDD industry revenue is expected to grow at only a 6.7% CAGR, it is growing from a large base. HDD industry revenue was $30 billion in 2006 and will increase by roughly 50% in six years to approach $45 billion by 2012 (see Table 5) IDC #

22 TABLE 4 Worldwide HDD Shipments by Major Application, (000) CAGR (%) Storage systems Entry servers Traditional workstations Desktop PCs Personal storage (DAS and NAS) Portable PCs Consumer electronics 17,086 19,781 23,034 30,026 33,870 37,363 43,954 56,465 72, ,260 11,336 12,382 11,479 11,948 12,045 12,382 12,803 13, ,050 1,251 1,468 1, , , , , , , , , , ,131 16,227 25,397 43,602 62,173 84, , , , ,044 76,114 96, , , , , , , ,629 58,416 73,910 71,960 82,546 90, , , , Total 305, , , , , , , , , Note: See Table 3 for key forecast assumptions. Source: IDC, # IDC

23 TABLE 5 Worldwide HDD Revenue by Major Application, ($M) CAGR (%) Storage systems 3,070 3,960 4,303 5,156 5,499 5,344 5,606 6,387 7, Entry servers 1,174 1,581 1,446 1,154 1,207 1,086 1,101 1,079 1, Traditional workstations Desktop PCs 10,969 11,546 11,027 10,855 10,457 10,452 10,195 10,119 9, Personal storage (DAS and NAS) 446 1,333 2,080 3,458 4,443 5,870 6,911 8,199 9, Portable PCs 4,589 5,583 6,498 7,963 9,217 10,212 11,067 11,424 11, Consumer electronics 2,710 3,728 4,203 3,756 4,196 4,432 4,645 4,786 4, Total 22,996 27,765 29,595 32,391 35,072 37,454 39,594 42,079 44, Note: See Table 3 for key forecast assumptions. Source: IDC, 2008 IDC's forecast for HDD industry revenue growth could prove to be conservative should HDD OEMs successfully develop and market new HDDs with additional features and functionality for which they capture incremental value. Value-add opportunities for HDDs include:! HDD hardware-embedded data encryption! Hybrid storage technology solutions that improve HDD performance at a lower cost than full SSD solutions! HDDs that reduce power consumption! Form factors and/or design features tailored to specific applications with the caveat that subsequent shipment volumes provide an ROI for the program development 2008 IDC #

24 IDC's HDD revenue forecast comprises a mix of HDDs with features that capture an associated price premium and standard HDDs. Historically, HDDs that ship with value-add features are able to extract a price premium for several quarters at least. We assume market and competitive dynamics in the future will exert price pressure on many value-added features that eventually result in the features becoming standard for a given disk drive. However, some HDD features that might result in higher HDD bill of materials costs could result in a reset of ASPs for HDDs with these capabilities. Hybrid HDD storage solutions provide a salient example where combining nonvolatile flash semiconductor storage with an HDD and using intelligence on the HDD to improve HDD and/or the host device performance might boost BOM costs markedly. In this example, it is likely that HDD OEMs would extract value for this capability with a price premium over standard HDDs for a prolonged period of time. This forecast iteration reflects only a small percentage of hybrid HDD solutions in future years. More research is underway to better understand the capability of hybrid HDD solutions compared with other storage solutions. IDC's HDD revenue forecast will be adjusted accordingly should hybrid HDD adoption assumptions be revised. When viewed from the perspective of terabytes shipped, a comparison of IDC's 2007 and 2008 HDD forecasts shows that annual HDD terabyte shipments are significantly higher in this forecast iteration. By 2012, the HDD industry will ship nearly 400 million terabytes, more than quadruple the 85 million terabytes shipped in 2007, to meet the growing storage requirements of an expanding digital world. Risks to Forecast The biggest risk to HDD industry shipment and revenue growth comes from near-term uncertainty over the prospects of the economies of key countries, especially the United States. Macroeconomic trends in the United States are strongly correlated to IT spending. A U.S. recession could impact IT spending negatively for an indeterminate period of time, although the impact to IT spending, specifically on IT hardware, is less clear. The depth and duration of slower economic growth in the United States will likely be a key factor as to whether economies in other regions are impacted negatively. A U.S. recession in 2008 would be different when compared with recent U.S. recessions. In recent recessions, U.S. homeowners were able to tap mortgage equity withdrawals as a source of cash to prolong discretionary consumer spending. Given that homeowners will be unable to tap mortgage equity in the present economic environment, a contraction of U.S. discretionary consumer spending is likely. Although more than 85% of worldwide HDD unit shipments and revenue are derived from traditional compute markets, consumers do purchase a high percentage of compute devices annually, including PCs and personal storage devices. The U.S. Congress has taken measures to stimulate the U.S. economy with tax rebates. Nevertheless, any slowing of discretionary consumer spending could have an adverse impact on HDD demand for these markets, at least near term. To a degree we believe storage growth, hence HDD demand, is somewhat mitigated due to a weak macroeconomic environment. The cost of HDD storage on a price-pergigabyte basis continues to decline. As HDD storage becomes cheaper on a priceper-gigabyte basis, it enables digital information to be captured and stored 20 # IDC

25 inexpensively and easily. This in turn results in faster content growth. This content creation and storage cycle is likely to persist in the face of a challenging economic spending environment. Further, from an acquisition cost perspective, the average price of hard disk drives continues to decline while capacities are increasing. Of equal importance to the potential economic impacts on the HDD forecast is recognizing the potential for the capacity requirements of certain devices to be satisfied using storage technologies other than HDDs, particularly portable PCs in certain usage scenarios. In 2007, Asustek introduced the Eee PC, an ultraportable PC with 4GB or 8GB of flash memory SSD storage. Asustek plans to sell 5 million Eee PCs in 2008, with some models providing up to 20GB of SSD storage capacity. The Asustek Eee PC provides an example where flash memory may provide goodenough storage capacity for a mobile computing product. However, another point to consider is that a certain percentage of mobile PCs, such as the Asustek Eee PC, could be additive to the overall market, rather than a replacement purchase for a traditional HDD-based mobile PC. IDC has accounted for devices such as the Eee PC in its PC forecast assumptions and expects a relatively minimal impact of these products on HDD shipments and revenue through Several overarching assumptions specific to the hard disk drive industry underpin this HDD forecast (for additional assumptions, refer back to the Assumptions section). Hard Disk Drive Technology Ongoing research and development of HDD technology continues to enable new HDD products with higher capacities and lower prices on a price-per-gigabyte basis. HDDs also continue to deliver improved performance, better reliability, and richer features. Advancement of HDD technology is the primary reason why the HDD industry has been able to shrug off the challenge from competing storage technologies for 50 years. Perpendicular magnetic recording technology, first introduced on commercial HDD products in 2005, is the latest HDD technology to make possible sustained areal density advancements. Areal density increases allow for more data to be stored on each disk, resulting in higher-capacity HDDs. PMR technology can also enable HDD OEMs to ship a given drive with fewer components, although this dynamic has lessened in recent years. PMR technology will enable areal density advancements of approximately 40% per year through An improvement rate of 40% annually is good, but it is less than the 100% annual areal density increases made possible by the industry transition from magneto resistive (MR) to giant magneto resistive (GMR) technology from 1998 to The speed for the HDD industry to transition from GMR to PMR technology is about the same pace as the industry transition from MR and thin film to GMR technology (see Figure 5). We do not foresee any new HDD technologies in development now that will facilitate HDD areal density growth rates greater than 40% per year. Conversely, after 2010 we expect leading-edge HDD areal density growth rates will likely slow to less than 40% per year. Figure 6 shows historical leading-edge HDD areal density products from 1998 to 2007 and IDC's assumptions for the highest commercialized areal density HDD products through IDC #

26 FIGURE 5 Worldwide PMR and GMR HDD Shipments Share of Total HDD Shipments by Year After Technology Introduction (%) Year 1 Year 2 Year 3 Year 4 GMR PMR Source: IDC, 2008 FIGURE 6 Worldwide Commercialized HDD Leading Edge Areal Density, (Gbits/in. 2 ) Source: IDC, # IDC

27 Several assist technologies will need to be used in conjunction with PMR technology to realize HDD areal density growth beyond approximately 2010, and these are being developed now. Owing to the cost to develop and deploy new HDD technologies, we assume they will be avoided by HDD OEMs for as long as possible. Further, these assist technologies will be employed first in HDD segments with the highest capacity demands. As such, IDC's assumptions for areal density advancements vary by HDD segment. Generally, we believe that mobile 1.8in. and mobile 2.5in. HDDs will adopt PMR-assist technology first. One example of an assist technology to PMR is dual-stage actuation (DSA, aka second-stage actuation). Prior to the launch of PMR technology in 2005, DSA was used on two HDD programs to extend longitudinal magnetic recording. Volume production of both HDD programs that had used DSA technology were discontinued in One of these programs used a load-beam-based DSA solution, while the other used a co-located DSA approach. Although DSA is not presently used in highvolume HDD programs, it is being investigated again as a solution on future HDD programs. The BOM cost adder for DSA technology is high. With DSA, there is a cost adder for every read/write head used in the disk drive. IDC expects most HDD OEMs will seek to design around DSA solutions for as long as possible. There are other HDD technologies that have a lower additional BOM cost per drive that may be adopted before 2012, but only for market segments that value the additional capacity provided by the technology. Examples include discrete track recording and/or bit patterned media. We expect commercial HDD products using these technologies will be possible by Hard Disk Drive ASP Erosion From 2002 to 2006, blended average HDD prices declined year on year by an average of about 8%. Year-on-year average HDD price erosion in 2007 was 5%. The slower rate of price erosion was achieved by a mix shift of HDD shipments to higher capacities and to smaller HDD form factors. These same market dynamics will intensify during the period from 2007 to 2012, and they will help to maintain a slower average rate of HDD price erosion across all form factors. Competing Storage Technologies to Hard Disk Drives NAND flash memory bit price erosion of 40 60% per year has made possible displacement of virtually all small form factor HDDs that were once used in handheld devices. Flash chips are not only displacing SFF HDDs in handheld devices but are also enabling the emergence of lower-cost solid state drives that will compete with traditional HDDs in applications with low-capacity requirements. A modest reduction of HDD demand for portable PCs in the later portion of the forecast period is assumed IDC #

28 To a lesser degree (in terms of unit volume), SSDs will make an incursion into traditional enterprise HDD markets. Certain compute applications that have intensive input/output workloads may be better served by SSDs. SSDs have no moving parts, whereas reading and writing data within HDDs requires positioning the read/write head over a spinning disk. The inherent mechanical design of an HDD results in some latency for reading and writing data. With an SSD, read latency is significantly reduced, although write times in current SSD designs often take longer than HDDs. The impact of SSDs in enterprise storage applications has been factored into this HDD forecast. It should also be noted that SSDs within the enterprise could be additive terabytes, as opposed to displacing traditional HDD terabytes. As such, we believe NAND flash based SSDs could also encroach on DRAM-based SSDs leveraged in many of today's enterprise systems. IDC continues to monitor several other nonvolatile storage technologies and does not foresee development of any new storage technologies within the forecast period that will threaten the market opportunity for HDDs. Alternatively, HDD storage has the potential to displace magnetic tape in certain storage usage models. This forecast does account for a relatively new application for HDDs, removable hard disk drives (R-HDDs). R-HDDs are designed to replace magnetic tape cartridges for data backup but not necessarily for data archiving. Although data archiving is not normally associated with HDD storage, industry participants are investigating HDD solutions that could provide a rotating magnetic disk alternative to magnetic tape. The use of HDD storage instead of magnetic tape for data archival could impact midline HDD storage demand negatively but increase overall HDD demand positively. This forecast does not assume any significant or deliberate incursion of HDD storage into traditional magnetic tape archival storage markets. HDD Market Overview The sections that follow review IDC's HDD market forecast by major HDD markets or consumption categories and by HDD form factor. Enterprise Applications Small and Speedy or Supersized? The enterprise market is increasingly bifurcated between using capacity-optimized (mainly ATA interface) and performance-optimized (SCSI/SAS/FC interface) HDDs. Exceptions are beginning to surface where capacity-optimized HDDs are used to achieve a high-performance storage solution. But solutions like this are unlikely to be adopted broadly to an extent where there is a major displacement of performanceoriented HDDs by capacity-optimized HDDs in storage systems. Nevertheless, greater use of capacity-optimized drives in enterprise storage applications does impact the demand for enterprise-class HDDs and is reflected in IDC's forecast. The majority of capacity-optimized HDD shipments through 2007 were 3.5in. form factor products. IDC expects the HDD industry will introduce a 2.5in. form factor capacity-optimized HDD in 2008, with three disks that are more tailored to rackmount 24 # IDC