Investor's Business Daily, March 13th, 2007
Is the venerable magnetic hard disk drive going the way of computer punch cards?
Flash memory, which has already supplanted magnetic hard drive disk storage in all but the largest-capacity models of Apple's AAPL iPod, may soon become standard equipment in some notebook computers too. Flash memory maker San-Disk SNDK announced Tuesday that it plans to start selling storage devices that offer large quantities of flash technology in a package the size of a standard notebook hard drive.
That could lead to more pressure on Seagate Technology STX and other makers of magnetic hard drives used in computers now.
SanDisk's new "solid state" drive offers 32 gigabytes of memory and works like a standard magnetic hard drive. But instead of reading data via spinning magnetic platters and moving a read head, the devices use flash memory. Because flash requires no moving parts, such drives could offer faster speeds for certain computing tasks and less power usage, among other benefits.
"Our goal is to provide a solid value proposition to the segment of the laptop marketplace that has real benefits for (consumers) that can afford to pay a small, but nonetheless premium price," said Greg Rhine, general manager of San-Disk's consumer products division.
A likely target for the new device: consumer giant Apple, which might use it for a high-end, yet-to-be-announced notebook, analysts say.
It's not good news for Seagate and other drive makers.
The announcement follows talk that Apple will use more flash at the expense of hard drives in its iPod music player and notebook PCs. Apple uses flash for lower-end iPods, while its high-capacity Video iPods tap hard drives.
Seagate, of Scotts Valley, Calif., recently began shipping 1.8-inch magnetic drives for gadgets. Its stock had dropped 8% in March before Tuesday, when it fell more than 2% further, to 24.05. But many analysts called the sell-off overblown.
Flash is pricier than hard drives in capacities of about 30 gigabytes or more. For that reason, some analysts contend that flash won't take much market share in the near term.
"I think really it will have very little, if any impact, for the next three or four years," said Matthew Kather, an analyst with WR Hambrecht.
Others, such as Citigroup analyst Paul Mansky, seem to agree. Mansky on March 4 upgraded Seagate to buy from hold, arguing that investors have been too hard on Seagate, especially in regard to the iPod.
"We are skeptical that Apple will broadly move to ... flash this calendar year across its video iPod line," he wrote.
Seagate began shipping 1.8-inch drives for gadgets such as the iPod in its most recent fiscal quarter, ended Dec. 30. Most laptops use 2.5-inch drives, while desktop computers use 3.5-inch drives.
Shaw Wu, an analyst with American Research Technology, says Apple could replace its video iPods' hard drives with flash as early as 2007, about a year sooner than he had thought.
Flash drives weigh less than hard drives of the same capacity and are more durable, making them a natural choice for the iPod, he wrote. Those qualities also make flash ideal for smart phones and laptops, which tend to have smaller hard-drive capacities than standard laptop PCs.
While the new competition could drag down hard drive prices, Hambrecht's Kather says the higher price of flash drives -- $300 more than magnetic drives on a typical laptop -- will ensure that standard hard drives dominate.
Others have predicted the demise of hard drives in the past, only to be proved wrong, says Krishna Chander, a research analyst with iSuppli.
"This is like the story about two years ago, when (low-capacity) iPods went from hard drives to flash," Chander said. "Then people said hard drives were dead and gone. Now people are saying hard drives are gone. That's not going to be the story."
Analysts note that while flash makers tout their advantages in chip-based memory, hard drives have proven their longevity. Also, Seagate is working on hybrid drives that use both flash and magnetic storage.
William Watkins, chief executive of Seagate, has downplayed the significance of the gadget market to Seagate's long-term success. By some estimates, consumer electronics will account for only 3% to 4% of Seagate's sales by year's end.
Other companies in fields such as GPS (Global Positioning Systems) or digital camcorders are looking at the higher storage capacities 1.8-inch magnetic drives offer.
He believes the cost advantage with traditional hard drives will favor Seagate in markets that demand more data storage.
"What we want is the desktop, the backup, the Internet and the enterprise," Watkins said.
Copyright 2007 Investor's Business Daily, Inc.
