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Prices plunge in storage market

Technology advances and increased competition from Asia are driving storage costs down to record levels, a boon for consumers.

Technology advances and increased competition from Asian storage makers are driving storage prices down to record levels, a recent study says, resulting in a bane for some manufacturers but a boon for consumers as demand reaches an all-time high.

Drive makers are increasing the storage capacity at a rate of 60 percent per year even as drive prices are staying flat, according to Jim Porter, author of the report and president of DiskTrend. But as consumers enjoy more bang for their buck, storage-hogging applications are proliferating.

In 1997, the average hard drive storage capacity

Declining storage industry revenues
Disk capacity 1998 1999 2000
< 1GB 98.3 46.1 31.3
1-2GB 582.4 99.3 34.5
2-3GB 5,082.5 1,435.3 344.4
3-5GB 11,970.1 6,260.1 1,822.5
5-10GB 11,283.4 14,468.4 8,201.5
10-20GB 4,114.4 11,928.3 16,735.4
20-40GB 241.9 1,675.4 9,236.1
Figures in millions of dollars.
was between 2 and 3GB. In 1998, the average storage capacity will be between 3 and 5GB, while the price per megabyte will drop to 5 cents. "The end user is getting one heck of a bargain," Porter added.

Yet there is no dearth of applications to fill up all the storage capacity. Porter pointed to the new Windows 98 operating system and growing applications for the Internet as potential drive hogs. "Software gets sloppier all the time--it takes hundreds of megabytes just to load Windows 98. The number of applications people use increases all the time, and they all use a tremendous amount of disk capacity."

Hard drive shipments worldwide are predicted to rise by 16.9 percent in 1998 to 152.6 million drives, while sales revenues are expected to rise by only 7.9 percent, accounting for tightened profits among the major drive makers.

Storage prices have also been impacted by increased competition from Asian makers like Fujitsu, Maxtor, and Samsung, which have been quicker than American companies to adapt to the rapid product cycles of the storage market. Non-U.S. storage makers accounted for 22.7 percent of worldwide drive revenues, a figure which is projected to rise to 30 percent by 2001.

"The key development in the industry this year is the increased level of competition that's been forced by the Asian companies, who have increased their level of production capacity," Porter said. U.S. companies like Seagate, Western Digital, and Quantum have been slower to respond to industry changes over the last year, he added.

"Management in these companies has to respond very quickly to each change in the technology to get it on the next product, and organize the business to get it done quickly," Porter noted. "Some [American companies] made tactical errors, but it was very good in terms of making them better competitors."