Hard drive industry: Competition rears its ugly head
The $22 billion a year disk drive industry is in big trouble. According to a Wall Street Journal article ("Behind TiVo, iPod and Xbox:An Industry Struggles for Profits", 10/14/2004), the top disk drive manufacturers have serious problems generating profits. There's a glut of product, margins are very thin, and excess manufacturing capacity in what is more and more a commodity industry is killing the profits of the leading vendors.
The industry has been in a long slump, according to the article, even when other sectors of the computer industry were doing well. All three major independent disk drive makers, Seagate (#1), Maxtor (#2), and Western Digital (#3) have had round after round of layoffs and dropping stock prices. Similar losses have occurred in the disk drive divisions of industry giants like IBM, Fujitsu, Samsung, and Hitachi. In fact, IBM sold its money-losing disk drive subsidiary to Hitachi in 2003.
Consumers have been the beneficiary, as disk capacities and speed have grown steadily while prices have fallen. One industry sources notes in the WSJ article that manufacturing disk drives is "the longest-running industrial philanthropy."
There are many categories of hard drives from large server-oriented array drives to the tiny drives in an Apple iPod. But all sectors seem to be doing poorly. IBM exited from the market in 2002. Quantum merged with Maxtor in 2000. Fujitsu dropped out of the desktop hard drive market recently. Experts expect further consolidation. The weakest players, especially Western Digital, may either drop out or be bought out soon.
Of course, drive manufacturers are played very nicely by the consolidating PC oligopsony. But the big problem for the companies is the existence of real, ungentlemanly competition by a few too many leading firms. Further consolidation might help this situation by giving the industry leaders a little more bargaining power. In commodity manufactures, the pressure toward oligopoly seems unrelenting.
8:12:03 PM 
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