Happy holidays for makers of disk drive parts
More and more, consumer electronics manufacturers are dropping high-capacity hard disks into their products--a windfall for the Asian companies that build drives and parts.
From video cameras to portable music players, consumer electronics manufacturers are increasingly incorporating high-capacity hard disks into their products to store video and music.
That's providing a windfall for the Asian companies that build drives and parts, ranging from screws to baseplates, and is offering investors a new trend to bet on.
Bullish forecasts abound. Research firm TrendFocus sees hard drive shipments to consumer electronics makers soaring to 55 million units in 2006 from an estimated 17 million this year.
Blazing a trail for the market is Japan's Toshiba, which provides small drives for Apple Computer's hugely popular iPod music player.
Toshiba controls 98 percent of the market for the 1.8 inch-diameter drives used in the iPod, which can pack up to 10,000 songs in a device the size of a deck of cards, and its small drives are also appearing in a miniature video camera that can record up to two hours of high-definition video.
It has developed an even smaller drive that measures just 0.85 of an inch. That compares with the 3.5-inch drives personal computers use that are increasingly found in game consoles and the popular TiVo digital video recorders.
"Everyone is talking about smaller drives these days," said George Poh, chief executive of Singapore-based Unisteel Technology, which makes precision screws for hard drives.
Poh expects demand for smaller drives to spur a wave of growth for the industry, and investors appear to agree. Unisteel's shares have vaulted 122 percent since the start of the year, dwarfing the 28.4 percent rise in Singapore's bellwether Straits Times Index.
But the company's stock is still relatively cheap, trading at 14.51 times current earnings against an average of 19.80 for Singapore's electronics index and just 10 times forecast 2004 earnings, according to Henderson Global Investors.
Unisteel's customers include U.S. hard-drive makers Seagate Technology and Maxtor, along with Japan's Hitachi.
"It's fantastically well run," said Stuart O'Gorman, director of technology investment at Henderson, which manages $122.5 billion globally.
Hard-drive sales account for just a small percentage of sales at Toshiba, Japan's biggest semiconductor maker, and Hitachi, which builds everything from nuclear power plants to flat-screen televisions.
So fund managers say investors looking for a more direct bet on the drive industry in Asia could consider Singapore's Brilliant Manufacturing, which makes aluminum hard-drive baseplates and top covers.
Brilliant Chief Koh Soe Khon said customer orders for the next two quarters were "very strong" and that the company would boost its regional factory capacity by 50 percent next year to meet demand.
"The hard-disk drive is no longer used just in PC applications but also in digital-media recorders and gaming consoles such as PlayStation and Xbox, (which) will support the overall (industry) growth trend," Koh said.
Brilliant's customers include Maxtor and U.S. rival Western Digital, along with Japanese consumer electronics maker Matsushita Electric Industrial, Panasonic's parent company.
Brilliant's shares have jumped 155 percent this year, and it has a price-earnings ratio of 14.06, in line with the sector manufacturing index PE of 14.95.
Teng Ngiek Lian, chief of Target Asset Management, which manages $150 million in Asia, is among fans of the company, which he said is trading at just 11 times forecast 2004 earnings.
"We think hard-disk drive demand will continue to be fairly robust, because, as the economy does reasonably well next year, more people will buy consumer electronics products and PC notebooks," Teng said. "The component manufacturers will thus enjoy improved sales."
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