Trends in the HDD Industry

Transcription

1 Trends in the HDD Industry Blount Ventures

2 Agenda 2007 Industry Report Card Competitive Analysis 2008 Outlook and Future Consolidation Things to think about 2

3 2007 Headlines Desktop Unit Shipment fall below 50% of Total HDD shipments Consumer HDD shipments decline slightly y/y WDC buys Komag, TDK buys Alps head assets, TDK buys a portion of Magnecomp WDC had a great year Hitachi had a good year Seagate had a solid year Toshiba and Fujitsu had a bad year 3

4 HDD s Outperformed S&P and NASDAQ in Stock Performance NTAP HPQ 45.5% 45.3% STX 32.6% HDDs Equal Weight DJIA SP500 XLK WDC NASDAQ 16.0% 16.3% 13.6% 11.3% 9.9% 9.5% Source: Yahoo Finance EMC -3.1% DELL -16.2% -20% -10% 0% 10% 20% 30% 40% 50% STX outperformed in

5 HDD s Stock Performance Mixed in Stock Performance -36.5% NTAP -3.8% -2.3% STX Dell SP500 HDDs Equal Weight DJIA NASDAQ XLK 3.5% 6.1% 6.4% 9.8% 14.6% HPQ 22.6% Source: Yahoo Finance EMC WDC 40.4% 47.7% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% WDC s performance in 2007 more than compensates for STX s underperformance. 5

6 Five Consecutive Years of Revenue Growth HDD Industry Revenue & Y/Y Growth $40 25% $35 20% $ billions $30 $25 $20 $15 $10 15% 10% 5% 0% (5%) (10%) Y/Y % growth $5 (15%) Source: TrendFocus $ (20%) Total HDD Revenue Y/Y Revenue Growth Strong 2H07 results propelled full year revenue growth of 8.1%. Fifth consecutive year of revenue growth. Revenue has grown at a 9.2% CAGR over the last 5 years. 6

7 HDD Units Finished Above Trendline in 2007 Units (millions) HDD Unit Shipments & Y/Y Growth % 35% 30% 25% 20% 15% 10% 5% 0% (5%) Total Units Y/Y Unit Growth Linear (Y/Y Unit Growth) Y/Y % growth Strong Sep07 and Dec07 qtr growth propelled full year unit growth of 15.3%, slightly above trendline. HDD units have grown 18% (CAGR) over the last 3 and 5 years and 15% over the last 10. Source: TrendFocus 7

8 Rate of ASP Erosion Continues to Slow HDD ASPs & Y/Y Growth $700 0% $600 (5%) ASPs ($US) $500 $400 $300 $200 $100 $0 (10%) (15%) (20%) (25%) (30%) Y/Y % growth The rate of ASP decline in 2007 was -6.5% which was slightly worse than the prior two years but in line with the long-term trend Overall HDD ASP Y/Y Price Decline Linear (Y/Y Price Decline) Source: TrendFocus 8

9 Diversification Should Drive Improved Valuation Growth and Change in Customer Base Total # of Customers and Partners # of Customers >$50M Annually Customers >$10M Annually % of Revenue from top 20 customers Source: Seagate 9

10 Diversification Should Drive Improved Valuation PCs as a Percentage of Total HDD Shipments % 37% 34% 32% 31% 33% 39% 43% 43% 47% 49% 46% % of total % 63% 66% 68% 69% 67% 61% 57% 57% 53% 51% 54% PC HDD Shipments non-pc HDD Shipments Source: Trendfocus 10

11 No Improvement in Valuation WDC Relative P/E Trends P/E Mult Rel to S&P Source: Yahoo Finance 11

12 No Improvement in Valuation STX Relative P/E Trends P/E Mult Rel to S&P Source: Yahoo Finance 12

13 2007 Report Card o + o + + METRIC STOCK PERFORMANCE REVENUE GROWTH UNIT GROWTH PRICING MARGINS 2007 YTD WDC outperforms, STX underperforms 5 th consecutive year of revenue growth 15.3% revenue growth, in line with 10 yr average, below 3 and 5 yr The long-term rate of ASP erosion continues to slow Margins at industry leaders continued to improve + INDUSTRY CONSOLIDATION Alps, Magnecomp, Komag gone + OTHER More realistic assessment of flash threat 13

14 Share Shifts by Platform 14

15 HDD Industry Share Shifts 4Q07 Total HDD Unit Share by Vendor (144.2M units) Source: TrendFocus Others 24.3% STX 34.4% HGST 17.6% T WDC 23.7% 4.0% 3.0% 2.0% 1.0% -1.0% -2.0% -3.0% -4.0% -0.4% WDC gained substantial share while the bottom 4 lost substantial share. Most of the share losses came from Samsung and Toshiba on a unit basis. Total 4Q06-4Q07 Share Shifts 3.0% 0.3% -2.9% STX WDC HGST Others 15

16 HDD Desktop Share Shifts 4Q07 Desktop HDD Marketshare by Vendor (68.9M units) HGST 13.9% Others 11.7% STX 43.4% Surprisingly, Hitachi and Seagate have been the largest share gainers. Samsung ceded the most share. Source for both charts: TrendFocus WDC 31.1% 1.5% 1.0% 0.5% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% Desktop 4Q06-4Q07 Share Shifts 1.3% 1.0% -2.3% STX WDC HGST Others 16

17 HDD Notebook Share Shifts 4Q07 Mobile HDD Marketshare by Vendor (43.3M units) STX 14.8% Others 39.2% WDC 20.1% Western Digital has posted dramatic share gains in notebooks largely because of their reliability as suppliers to the larger OEMs and capacity/platter leadership. Fujitsu has accounted for approximately 3/4 of the industry share loss with Hitachi accounting for most of the balance. Notebook 4Q06-4Q07 Share Shifts Source for both charts: TrendFocus HGST 25.9% 15.0% 1 5.0% -5.0% % -2.8% -8.3% 0.2% STX WDC HGST Others 17

18 HDD Enterprise Share Shifts 4Q07 Enterprise HDD Marketshare by Vendor (8.5M units) HGST 16.9% Others 20.8% STX 62.3% Surprisingly, Seagate has gained meaningful share over the last 12 months. Initially due to concerns about the reliability of Hitachi as a supplier but more recently due to some challenges at Fujitsu. WDC Enterprise 4Q06-4Q07 Share Shifts Source for both charts: TrendFocus 6.0% 4.0% 2.0% -2.0% -4.0% -6.0% 4.1% 0.4% -4.5% STX WDC HGST Others 18

19 HDD Consumer Share Shifts 4Q07 Consumer HDD Marketshare by Vendor (23.5M units) Others, 35.2% STX, 34.1% WDC gained the most share over the last 12 months with most of the gains coming in retail. Toshiba accounted for more than 100% of the share loss within others due principally to Samsung s gains in 1.8 Consumer 4Q06-4Q07 Share Shifts HGST, 13.5% Source for both charts: TrendFocus WDC, 17.3% 5.0% 4.0% 3.0% 2.0% 1.0% -1.0% -2.0% -3.0% -4.0% 4.1% -1.0% -3.3% 0.2% STX WDC HGST Others 19

20 What about Others - Who Experienced the Greatest Challenges? 20

21 Toshiba Toshiba 4Q07 Form Factor Mix (10.9M units) 1.8", 30.8% Toshiba 4Q07 App Rev (10.9M units) Consumer, 36.2% 2.5", 69.2% Mobile, 63.8% Source: TrendFocus and Company Reports Toshiba HDD Product Mix Shift (LTM) Toshiba HDD Product Mix Shift (LTM) % Change (5.0%) (1) (15.0%) -17.6% -1.3% -1.0% % Change (2.0%) (4.0%) (6.0%) (8.0%) -8.4% -0.9% -1.0% (2) <=1.8" 2.5" 3.5" Total (1) Consumer Desktop Mobile Enterprise Total 21

22 Samsung Samsung 4Q07 Units Rev (13.05M units) Samsung 4Q07 Platform Units (13.05M units) 3.5", 60.9% Mobile, 20.8% <=1.0", Desktop, 56.2% Enterprise, 2.5", 20.9% 1.8", 18.2% Consumer, 23.0% Source: TrendFocus and Company Reports Samsung HDD Product Mix Shift (4Q06-4Q07) Samsung HDD Product Mix Shift (4Q06-4Q07) % Change % -2.7% -3.2% -1.4% % Change 2.0% 1.0% (1.0%) (2.0%) -2.2% 1.1% -0.6% -1.4% (1) <=1.8" 2.5" 3.5" Total (3.0%) Consumer Desktop Mobile Enterprise Total 22

23 Fujitsu Fujitsu 4Q07 App Rev (25.4M units) Fujitsu 4Q07 Platform Rev (25.4M units) 3.5", 16.9% Enterprise, 16.9% 2.5", 70.3% <=1.0", 12.8% Mobile, 70.3% Consumer, 12.8% 1.8", Desktop, Source: TrendFocus and Company Reports Fujitsu HDD Product Mix Shift (4Q06-4Q07) Fujitsu HDD Product Mix Shift (4Q06-4Q07) % Change (0.5%) (1.0%) (1.5%) (2.0%) (2.5%) (3.0%) (3.5%) -3.3% -0.5% -0.3% <=1.8" 2.5" 3.5" Total % Change 6.0% 4.0% 2.0% (2.0%) (4.0%) (6.0%) (8.0%) Consumer 4.9% Desktop -6.8% -4.5% Mobile Enterprise -0.3% Total 23

24 Who Did Well? 24

25 Western Digital WDC 4Q07 Form Factor Mix (34.2M units) 3.5", 74.5% Western Digital 4Q07 App Rev (34.2M units) Mobile 25.5% Desktop 62.6% 2.5", 25.5% Consumer 11.9% Source: TrendFocus and Company Reports WDC HDD Product Mix Shift (4Q06-4Q07) WDC HDD Product Mix Shift (4Q06-4Q07) % 8.0% 1 % Change 6.0% 4.0% 2.0% -0.3% 9.0% 1.2% 3.0% % Change 8.0% 6.0% 4.0% 2.0% 4.1% 10.9% 3.0% (2.0%) <=1.8" 2.5" 3.5" Total Consumer Desktop Mobile Enterprise Total 25

26 Hitachi HGST Quarterly Income Statement Trends $1,800 1 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $- Mar04 Jun04 Sept04 Dec04 Mar05 Jun05 Sept05 Dec05 Mar06 Jun06 Sep06 Source:Hitachi Global Storage Company Reports 26 Dec06 Mar07 Jun07 Sep07 Dec07 5.0% -5.0% % -2 Hitachi turns profitable. Does this mean a private equity deal is on hold?

27 2008 Outlook Demand Likely to Slow Offset by Measured Capacity Additions 27

28 2008 Could be Tough Year PC growth likely to slow from 14.3% rate posted in 2007 closer to long-term unit growth of 10% Weaker dollar could help sustain solid intl demand At least half of HDD demand goes into Consumer PCs or products. Suggests HDD demand could slow from 15.3% to 11%-13% Additional Consolidation Possible HDD planned capacity additions suggest utilization could fall to mid-80%. 28

29 Planned HDD Capacity Additions 4Q07 4Q07 Capacity 1Q08 1Q09 Ships Capacity Utilization Plan Plan % Change ExcelStor % Fujitsu % % HGST % % Samsung % % STX % % Toshiba % % WDC Source: Trendfocus Industry Totals % % High capacity utilizations combined with measured planned capacity additions (NTM) suggest that 2008 may deliver positive rev growth despite sluggish demand. STX stock could underperform WDC stock based on planned capacity adds. 29

30 2008 and Beyond Outlook??????? METRIC 1H08 OUTLOOK 2008 and Beyond STOCK PERFORMANCE REVENUE GROWTH UNIT GROWTH PRICING MARGINS INDUSTRY CONSOLIDATION OTHER 1H traditionally touch for HDD stocks Low inventory and capacity constraints help 1H08 14%-16% unit growth in 2007, low inv drive better 1H08 Likely to weaken in June due to economy Less than norm due to inv fill, Hitachi discipline, capacity Toshiba, Fujitsu, and Hitachi possible Success of WDC- KOMG Integration, Other Mergers HDDs should rally in 2H08 after 1H08 correction Slowing Rev Growth in 2008 likely due to economic concerns Slowing Economy/PC Ships should slow unit growth to 11%-13% 2H08 Dependent on economy, mix, capacity adds and competition Full year margins have same dependency as pricing Semi consolidation possible HDD companies enter solid state market 30

31 A Few Thoughts on Components 31

32 Upward Component Cost Pressure for Non-Vertically Integrated Players Heads and Disks per Drive Heads per drive Disks per drive Source: Seagate Growing number of components per drive favors vertically integrated companies Unit Base over which to spread R&D cost for certain components (heads/media/substrate) is shrinking Certain component segments are likely to continue to consolidate 32

33 HDD Component Industry Consolidation Merchant TAM per Competitor Estimated Merchant Leader Share Merchant TAM per Competitor After Leader Merchant % Competitors Motors 100% 4 25% 80% 7% Suspensions 100% 4 25% 60% 13% Heads 37% 1 37% 100% 0% Media (AlMg) 35% 2 18% 50% 18% Semi 100% 5 20% 31% 17% Source: Trendfocus,Seagate Theoretical Merchant TAM per Competitor 33

34 A Few Things to Think About 34

35 Things to Think About What solves the HDD I/O problem? Could there come a point in time when all (almost all) hard drives reside in the cloud and not in the home? AND if so does that mean a very bright future for high capacity drives? Capacity/platter wins? What are the storage implications of some of the emerging purpose built devices? What are the implications of the Iomega reverse merger with China? Consumer Unit growth actually declined in 2007 versus

36 THANK YOU! QUESTIONS Special Thanks to Trendfocus for Industry Statistics 36