Hard drive industry sees profit margin decline

According to market research firm iSuppli, hard drive shipments increased by 12.2% in the first quarter of 2007 compared to the same period last year. The shipments were down 4.7% from Q4 2006, which is an expected pattern following the peak holiday sales period.

Even though hard drive makers are seeing solid growth in demand, plunging prices and intense competition among the six major hard disk drive suppliers – Seagate, Western Digital, Hitachi, Samsung, Fujitsu, and Toshiba – are squeezing their margins and profitability.

Seagate’s gross margin declined to 21.3 percent in the first quarter of 2007, down from 24.3 percent a year earlier— before the company’s acquisition of Maxtor. Net income for Seagate dropped to $212 million, down from $274 million a year earlier. Western Digital’s first-quarter gross margin was 15.7 percent, down by several points from 19.3 percent one year ago. However, bucking the trend, Western Digital’s net income in the first quarter was $121 million, up from $103 million a year earlier.
In terms of market share, Seagate is still on top with 34.6 percent share of global shipments. But as the hard drive industry continues to see intense competition and changing demand patterns, manufacturers will need to pressure their suppliers to reduce the costs of the materials used, in order to improve gross margins.