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Hitachi production ramp-up = cheaper storage
More drive for less
News this week that Hitachi is going to double its production of high-capacity disk drives gives us a hint at the production volumes involved in the forthcoming war over disk-based music systems like the Apple iPod.
This war will also extend to an ever-widening range of devices that are now made feasible by cheaper, smaller, more resilient disk drives. Hitachi makes the 1in drive for the new low end mini iPod. Earlier iPods featured 1.8in disks made by Toshiba. The battle - not restricted to these two players - had raged around 20 Gigabyte and 40GB devices. The iPod mini has broadened the conflict to lower densities like 4GB.
Now Hitachi said that it will make 60 million low end disk drives, double what it made last year, including eight million 1in drives. But in the last few weeks Toshiba has hit back with the world’s smallest disk drive at 0.85in - with 2GB and 4GB versions. It's hard to get a gauge on just how many such devices Toshiba plans to make, but if we assume for a second that it was previously geared up to make enough for the iPod - before losing the contract to Hitachi - and that already 2 million iPods have shipped with Toshiba drives in them, then it must be a similar figure. Toshiba certainly makes about 60 million 2.5in drives already, mostly for laptop PCs.
If that estimate is right, then these two companies alone will be making more than 120 million micro disks of one variety or another. Both companies began life designing these disk drives for digital cameras and video cams. That’s where much of this technology ends up. Toshiba’s Flash is also an option, for instance running as buffer capacity while changing video cassette tapes etc... Other drives are used purely for still cameras.
But the invention and success of the iPod has given both of these miniature storage specialists an option to fit them into portable music players, as long as they can keep the prices down. It is only a matter of time before the higher capacity 1.5in and 1.8in drives (the capacity goes ever upwards) end up in portable video players - such as the Microsoft-inspired Portable Media Centers due for release in the second half of 2004 from mostly Far Eastern manufacturers Creative, iRiver, Samsung, Sanyo, and ViewSonic. These will have capacities of between 20GB and 60GB, so that's right in the ball park for our two Japanese suppliers.
Each device manufactured with such a disk tends to be priced between $250 and $600. So does this mean that in the next 12 months we will be consuming between $30bn and $60bn worth of devices for consuming either portable digital music, video, pictures or even in phones? Perhaps that’s too many, since laptops will take much of this production, but then again there are many other suppliers of laptop disk drives who themselves might be eyeing this market jealously and thinking that it might be a profitable shift to make.
Fujitsu, Samsung, Maxtor, Seagate and Western Digital, to name a few, might suddenly see that consumer micro disk drives are worth investing in. They may decide to join the party, and depart from their traditional 3.5in and larger form factors. That's where Hitachi started out, and the company still makes 3.5in and 2.5in devices at the original Thai factory.
Hitachi Global Storage Technologies (GST) described Microdrive storage as experiencing "exponential demand", and plans a substantial manufacturing expansion for the 4GB microdrive product at its Thailand facility.
It will cost Hitachi $200m to double the output of the plant. Although it now says that it will make at least 2 million of the smallest 1 inch drives per quarter, it probably made only 250,000 a quarter until it landed the Apple contract. The hike would an eight-fold increase over a very short period. The wording that Hitachi used was "several million", so it is likely that it can exceed that two million a quarter target, if the demand is there.
The Microdrive was introduced in 1999 by IBM initially at 340MB and later at 1GB capacity. With the acquisition of IBM’s hard drive business in 2003, Hitachi GST launched the 2GB and 4GB Microdrive products the same year. This year it plans to improve their output speed by 70 per cent.
Toshiba may have queered its pitch with Apple when it introduced its own Gigabeat hard drive music player in Japan back in August, but it might just as easily have been a reaction to losing the Apple contract to Hitachi and a product to use up its excess inventory.
Either way, we have seen Sony in the last week launch a hard drive music player under the Vaio brand (Vaio Pocket). Although it never declared its disk drive supplier, it is hard to believe it would be anyone else but long-term partner Toshiba. And where Sony treads, Samsung and Panasonic are rarely far behind - not to mention Sanyo, Sharp et al.
At the moment the smallest drives are not sufficiently shock-proof to survive in mobile phones, but they’re getting there. With a potential market of one billion mobile phones, these Microdrive makers are not going to stop until their products survive a fall from your top pocket. In the meantime, the success of Apple iPod has given them another, unexpected staging post on the way, and enough confidence to double production.
More production will mean increased competition and cheaper prices and suddenly a proliferation of huge amounts of data capacity in form factors there were previously only capable of holding a 2.1cm Flash memory card, with less than a quarter of the storage. These devices are costing between $100 and $200 now in volume and will fall to $50 to $100 before the end of 2004.
© Copyright 2004 Faultline
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