Lake Forest’s Western Digital Corp. and its rivals duked it out in the first quarter as competition heated up and prices fell on computer disk drives, according to a report.
In the quarter, the disk drive industry got hit with falling prices and fewer shipments, according to El Segundo-based market research firm iSuppli Corp.
Shipments were up about 12% from a year ago but down nearly 5% from the fourth quarter of 2006, the report showed.
Drive makers shipped 114 million drives, below iSuppli’s expected 118 million.
The quarter-to-quarter decline was a surprise given reasonable demand in the personal computer market, driven largely by notebook computer sales.
Drive makers have been counting on higher-profit sales of drives for notebooks,and the competition has been fierce, iSuppli said.
The net effect was a price war that forced drive makers to one-up each other by lowering prices.
The price cutting boosted demand because consumers and businesses bought notebooks for cheaper than ever before, iSuppli said.
Top drive maker Seagate Technology saw its gross margin fall to about 21%, down from about 24% a year ago, iSuppli said.
Net income dropped to $212 million from $274 million. Seagate held its market share at about 35%, the same as a year ago.
No. 2 Western Digital saw gross margins fall to about 16% from 19%.
Even so, Western Digital pulled off a solid quarter and grew net profits 17% to $121 million. The company upped its market share one percentage point to about 22%.
No. 3 Hitachi Ltd. sunk deeper into red ink with a loss of $150 million, wider than the $46 million loss it had a year ago. The company held its market share at about 17%.
Drive makers are expected to pressure suppliers to reduce the costs of the materials that go into drives to help pad already slim margins.
Suppliers could be pushed to lower costs by as much as 5% in the coming quarters, iSuppli said.
