Easier Times for Hard Drives

For now, Seagate is the only major U.S-based manufacturer that is building mini-hard drives for consumer electronics. Western Digital(WDC) is expected to have a product ready by the end of the year, while Maxtor(MXO) won't have one ready until sometime in 2006. The real competition, though, is in Asia. Hitachi(HIT), for example, is the dominant supplier of drives for the larger flavors of the iPod.

Other drive makers aren't the only competition facing Seagate -- there's a whole other technology, known as flash memory used in cameras, cell phones and other small devices. Flash, a kind of a memory chip, is rugged and small, which gives it a striking advantage over electron-mechanical hard drives. The downside is that it's 10 to 15 times more expensive on a per-megabyte basis.

O'Malley says that by 2007 or 2008, flash will have gotten so much cheaper that it could challenge the hard drive in devices that require just 4 or 5 gigabytes of storage. But he's betting that the demand for multimedia, particularly video, will require more storage than would be affordable using flash, and that advances such as perpendicular design will keep his prices well below that of the memory makers.

IDC analyst John Buttress worries that his own forecast of growth in the CE space for the drive makers could be too bullish. "These are emerging markets," he says. "Our assumptions might not pan out."

One reason: Service providers are having trouble making money on new, memory-hungry applications such as camera phones. If they don't find a way, all the bubbly predictions of millions and millions of hard-drive-enabled cell phones will prove false, Buttress says.

Similarly, Microsoft isn't making enough money on Internet gaming to support the cost of adding a hard drive, which isn't needed for single-player action on the Xbox. Instead, the drives will likely become optional, Buttress says.

But for all the potential problems, it's clear that the hard-drive space is finally becoming interesting again.

>To order reprints of this article, click here: Reprints