Seagate Only One Declining in HDD Shipments From 4Q12 to 1Q13 – Trendfocus

Here is an abstract of CQ1’13 Quarterly Update – May 6, 2013 Executive Summary, SDAS: HDD Information Service from Trendfocus, Inc.

CQ1 HDD Shipments Flat at 136 Million
Supply Appears in Balance with Demand

Notes: Nearline HDDs are included in the enterprise segment. Adjustments to shipments and market shares in this document may be made in the final Quarterly Update.

In a flat sequential HDD market, Seagate was the only company to decline in unit shipments from the prior quarter. Despite the loss of share, Seagate achieved better-than-expected financial results in the eyes of Wall Street analysts. The company shied away from lower margin desktop and mobile HDDs, while chasing down more lucrative nearline enterprise HDDs. As a result, Seagate managed to keep flat ASPs in CQ1 ’13 at $63. The company shipped 55.70 million HDDs in total – a 4% sequential drop – while posting gains in the enterprise and CE segments.

Toshiba achieved the largest sequential percentage gain in HDD shipments, jumping nearly 9% from CQ4 ’12 to reach 20.06 million in CQ1 ’13. As a result, its overall market share now rests just below 15%. While it’s emerging desktop and nearline segments posted torrid percentage gains on low volumes, its higher volume segments of mobile, traditional enterprise, and CE HDDs made solid sequential improvements in the range of 3% to 9%. In an HDD market without major growth, Toshiba will have to maintain its recent executional improvements in order to hold its share of the market as little will be gained by predatory pricing tactics in the hopes of producing large share gains.

As a combined entity of WD and HGST, WDC has managed to execute well against its peers in CQ1 ’13. For the quarter, WDC increased its lead as the largest HDD supplier in the industry, shipping 60.17 million units. The only major segment in which it declined sequentially in unit shipments was in its branded business; however, the decline was well in-line with seasonal norms. In the nearline HDD segment, WDC grew nearly 15%, out-shipping its rivals in this profitable market – it boosted shipments to 4.11 million in CQ1 ’13. Despite a $1 drop in ASP to $61, WDC managed to cut its cost-of-sales in order to boost its sequential gross margin by 50 basis points to 28.2%. China’s MOFCOM continues to mandate a separation between its two divisions, forcing the company to incur additional costs from duplicative functions, but the company seems to be managing the financial obstacle very well.

HDD Shipments Application Matrix, CQ1 ’13

• Mobile HDDs: Despite a notebook PC market that fell nearly 19% sequentially, mobile HDD shipments (2.5" external HDDs are included in this summary) remained remarkably unaffected in CQ1 ’13. Mobile HDD units finished the quarter at 62.15 million units, off only 1% from the prior quarter. More unusually, no apparent signs of inventory build-up have appeared as a result of the mismatch between PC versus HDD shipments and price erosion going into CQ2 appears minimal. Over the coming quarter with continued PC weakness amidst stable HDD demand, demand gaps and inventories will be under tremendous scrutiny.
• Desktop HDDs: Suffering the greatest sequential takedown of any segment, desktop HDDs still managed to post a very modest decline of 3%, with 43.36 million units in CQ1 ’13. This reduction better reflects normal seasonality in both PC sales and post-holiday external HDD sales declines. Desktop HDD unit volumes will remain under pressure as desktop PCs and 3.5" external HDDs are marginalized by their portable counterparts; however, desktop HDD EB shipments will continue to grow as capacities mix upward.
• Enterprise HDDs: Traditional performance enterprise HDDs typically decline in CQ1 following CQ4 corporate budget flushing; however in CQ1 ’13, traditional enterprise models chalked-up a modest gain of under 1%, rising to 7.68 million HDDs. Nearline, or capacity-optimized HDDs, continue to grow at a steady and healthy pace – nearline units rose over 12% from CQ4 to end at 8.34 million. Hyperscale applications and demand for storage capacity at conventional enterprise customers will continue to drive nearline unit and EB growth over the long term.
• Consumer Electronics (CE) HDDs: After a highly unseasonable decline in CQ4, CE HDDs rebounded somewhat in CQ1 ’13 to 14.40 million units. 3.5" CE HDDs used mostly in xVRs have not followed post-holiday declines in the past and in CQ1 ’13, this segment grew nearly 4% to 8.75 million. 2.5" CE HDDs can suffer a drop off after CQ4 with holiday sales of HDD-containing game consoles falling off in CQ1; however, current console platforms are refreshing this year, so overall 2.5" CE units used for gaming have remained low for the past couple of quarters. With transition of some xVRs over to 2.5" HDDs and steady demand for automotive applications, 2.5" CE HDD volumes increased over 5% to 5.42 million units in CQ1 ’13. 1.8" CE HDDs continued to ship at low volumes, with 0.23 million units for the quarter.