Highlights of the 2006 Hard Disk Drive
Capital Equipment Market and Technology Report

In 2004 through 2006 the hard disk drive industry recovered from the slump in the early 2000’s. This recovery in the industry is leading to unprecedented growth in capital equipment spending. Demand for computer applications have been increasing, particularly for notebook computers. Because of the low cost per GB compared to other digital storage technologies hard disk drives are now playing a major role in many
new digital applications, particularly in the consumer electronics industry. As a consequence, hard disk drive demand has reached unprecedented llevels. Total drive shipments grew almost 25% from 2004 to 2005 (305 to 380 million units) and it is expected to grow 16% more in 2006. A sustained unit growth rate of at least 15% for the industry over the next few years appears very likely

At the same time average disk drive pricing has stabilized considerably. HDD prices tumbled in the late 1990’s and early 2000’s due to many periods of excess inventory, intensive price competition between the players, heavy pressure by customers for lower prices plus the ability to make drives of useful capacities with fewer components due to very rapid areal density increases. Since mid-2003 the rampant price
erosion has come to an end and in 2004 and 2005 prices showed remarkable stability. In 2005 in fact the average price of hard disk drives showed a peak in the second quarter leading to overall somewhat higher price prices in 2005 than 2004.

The causes for increased drive price stability overall include significant industry consolidation. With the mergers of Maxtor and Quantum, Hitachi and IBM drive operations and most recently the acquisition of Maxtor by Seagate there are many fewer competitors in the most competitive hard disk drive markets and thus less odds that one competitors will try to gain market share by undercutting the prices of its competitors.

Another cause of increased price stability is a critical shortage of drive components, especially disks. Shortages of components over the last couple of years limited the industry’s ability to manufacture hard disk drives. Figure 1 shows media sputtering capacity and demand trends from the late 1990’s projected to 2007 including a possible additional constraint on media supply due to yield issues with perpendicular recording media. As a consequence this media shortage may be acting as an external constraint on drive supply and thus help to keep drive inventories within acceptable levels and sustaining more stable HDD ASPs.

         

Technology development in the HDD industry has recovered somewhat from the slow down in 2002 through mid-2004. Starting in Q2 2004 another spurt of technology introductions began which has led to a rapid but intermittent stream of higher areal densities. Plotting the introduction of products with new areal density levels demonstrates the uneven pace of new technology introduction. Both public technology demonstrations and new product introductions with higher areal densities tend to occur over a few quarters and then no new areal density introductions occur for a few quarters until the new technologies have matured.

Capital equipment spending for the hard disk drive industry increased 39% in 2005 from 2004 with a further increase of 29% expected in 2006 over 2005. Table 1 below shows spending for capital equipment in 2005 and 2010 as well as the ratio of capital spending to expected HDD company revenue.

In 2005:

• 73% of equipment capital equipment spending for production process equipment, 19% for production test and 8% for metrology (see Figure 2).
• 38 % of equipment capital spending was for head and wafer equipment, 33% for media and substrate equipment and 29% on drive equipment (see Figure 3).

Major factors driving hard disk drive equipment spending
from 2006 through 2010 are:

• Annual drive volumes increasing 100% between 2005 and 2010
• Shortages in critical new technology components
• Form factors ratio changes: 2.5-inch and smaller HDDs will dominate by 2010
• HDD and component companies have more cash to invest in equipment due to higher drive demand and stable drive prices
• New HDD applications require new manufacturing capital equipment and process changes
• Transition to perpendicular recording making much older equipment obsolete
• Lower flying heights increasing metrology requirements as well as tightening of head and disk specifications
• By 2009 and 2010, to continue areal density increases the industry must introduce new technologies such as HAMR, discrete track media or patterned media

The report includes in-depth analysis of capital spending trends, technical and market drivers for capital spending, and a breakdown of equipment spending categories and products.

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