Are flash and cloud storage starting to end the disk drive's spectacular run on the storage stage?
Seagate has just announced its second quarter results for is fiscal 2011 year, with an abrupt drop in profits - $150m compared to $533m a year ago; and lower revenues too - $2.7bn compared to $3.03bn a year ago.
Western Digital's quarterly results were better but it too is forecasting lower demand for disk drives.
WD revenues in its fiscal second quarter, ending 31 December 2010, were $2.48bn ($2.6bn a year ago) - Wall Street had been expecting $2.35bn, with net income of $225m ($429m a year ago). It shipped 52.5m drives compared to 49.5 million a year ago. It is forecasting next quarter's revenues to be lower than Wall Street had been expecting; $2.2 - £2.5bn.
Revenue and profits were down year-on-year although drive ship numbers were up.
WD said the total addressable market (TAM) was 168 million in the latest quarter, but thinks it will only be 155 million in the next quarter, partly because there is unsold inventory in the channel; six to eight million units. Seagate is forecasting next quarter's TAM to be 155 million - 165 million units, higher than WD.
Stifel Nicolaus analyst Aaron Rakers commented on the Seagate results, saying they were "indicative of shipment share losses in each market segment (of particular note, traditional enterprise-class drives" including desktop, mobile and enterprise.
"Seagate noted that the industry does have some excess capacity at this time... Consumer demand for PCs continues to be muted, although Seagate is seeing a strengthening of commercial demand for PCs as well as in the enterprise market. "
One conclusion to be drawn from the two HDD suppliers' numbers is that demand is falling behind supply. Yet data growth is continuing its pell-mell sprint to the zettabyte level. What gives?
Tablets and the cloud
Tablets and the cloud spring to mind. PC ship estimates are down because tablet sales are sucking away demand from PCs used primarily for internet browsing and other content-consuming activities. We're heading towards a cross-over point where combined smartphone and tablet sales overtake PC sales.
The cloud means consumers are using remote storage from service providers more and more, so that they need fewer gigabytes or terabytes of external storage.
It's very, very early days and this is just a pair of quarterly results, but you can draw yourself a picture where flash-using tablets are cannibalising desktop and notebook sales, driving down demand for desktop and mobile drives. You can say laptops will use more flash, following the MacBook Air example, meaning more lost hard disk drive (HDD) sales, and go on to say that Mozy, Nirvanix, and other cloud service providers are cannibalising external HDD sales.
HDD pessimists say things are only going to get worse. Flash is on a roll; Dell has just added Pliant Lightning Enterprise Flash Drive SSDs as an option for its PowerEdge server and PowerVault storage products, and EMC has said it has sold 10PB of flash storage products.
Indeed, flash market watcher Zsolt Keres thinks that data centres will transition to 100 per cent solid state storage in the 2015 to 2019 period. HDD manufacturers have no truck with that view.
Back on the tablet front, Seagate is pushing the message that flash-using content creation (smartphones, digital cameras and video camcorders) and consuming devices will fuel demand for external HDD storage. In that case the external HDD TAM should increase. We don't know if that's the case but it is going to become a vital number to watch.
If it increases then tablets and the cloud will probably not cause great swathes of the HDD business to be lost. If it turns down though, and so does the overall HDD TAM, then the HDD's starring role on the storage stage could be coming to an end.
It will take years to decline because flash fab capacity has got to increase enormously but it will happen; the spinning is going to stop. ®