HDD Market Update: HDD Market Update: Steadier, Simpler Times Ahead, Steadier, Simpler Times Ahead,

or More of the Same?or More of the Same?

November 7, 2007November 7, 2007

IDEMA Analyst BreakfastIDEMA Analyst Breakfast

TopicsTopics

HDD Industry UpdateHDD Industry Update– 2007 HDD forecast, adjustments2007 HDD forecast, adjustments– What is driving storage demand?What is driving storage demand?

SSD/flash: is the threat real?SSD/flash: is the threat real?

ConclusionsConclusions

HDD Industry UpdateHDD Industry Update

2007 shipments have tracked as expected2007 shipments have tracked as expected

CE is disappointing, or is it? CE is disappointing, or is it?

SSD/flash threat growing, or is it?SSD/flash threat growing, or is it?

Consolidation is the buzzwordConsolidation is the buzzword– Seagate/Maxtor, WD/KomagSeagate/Maxtor, WD/Komag– Is there more HDD consolidation? Media?Is there more HDD consolidation? Media?

Overall, the HDD business is normalOverall, the HDD business is normal

2007 Forecast, Adjustments2007 Forecast, Adjustments

Desktop PC market as expectedDesktop PC market as expected

Slightly stronger mobile computing demand – Slightly stronger mobile computing demand – capacities mirroring desktopcapacities mirroring desktop

No surprises in enterprise totalsNo surprises in enterprise totals– Quicker SFF adoption, SAS rising fastQuicker SFF adoption, SAS rising fast

CE reevaluationCE reevaluation– DVR/PVR solid in US, Japan, slower elsewhereDVR/PVR solid in US, Japan, slower elsewhere– Game consoles and HDDs have hit speed bumpGame consoles and HDDs have hit speed bump– PMP – life expectancy?PMP – life expectancy?

Original 2007 ForecastOriginal 2007 Forecast(February, 2007)

Computing-driven demand Computing-driven demand throughoutthroughout

CE portion – >20% in ’07 – CE portion – >20% in ’07 – to – 27% by ’11to – 27% by ’11

2.5” engine for growth – 2.5” engine for growth – notebooks!notebooks!

2.5” to surpass 3.5” by end 2.5” to surpass 3.5” by end of forecastof forecast

1.8”-and-below weak1.8”-and-below weak 0

100

200

300

400

500

600

700

800

900

2007 2008 2009 2010 2011

3.5" Computing 2.5" Computing 1.8" Computing

3.5" CE 2.5" CE <=1.8" CE

Units (M)

Revised 2007 ForecastRevised 2007 Forecast(August, 2007)

’’07 lowered 1% - to 495+ 07 lowered 1% - to 495+ millionmillion

CE portion – >20% in ’07 CE portion – >20% in ’07 growing to 24% by ’11growing to 24% by ’11

2.5” outlook bolstered – 2.5” outlook bolstered – notebook growth!notebook growth!

Roughly reduced each year Roughly reduced each year by 3-4%, mainly in CEby 3-4%, mainly in CE

<=1.8” demand changing<=1.8” demand changing 0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011

3.5" Computing 2.5" Computing 1.8" Computing

3.5" CE 2.5" CE <=1.8" CE

Units (M)

Seasonality is Here to StaySeasonality is Here to StayHDD Quarterly Shipment % Change (1998 - CQ2 '07)

Source: Trend FOCUS, Inc.

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

CQ1'98

CQ2'98

CQ3'98

CQ4'98

CQ1'99

CQ2'99

CQ3'99

CQ4'99

CQ1'00

CQ2'00

CQ3'00

CQ4'00

CQ1'01

CQ2'01

CQ3'01

CQ4'01

CQ1'02

CQ2'02

CQ3'02

CQ4'02

CQ1'03

CQ2'03

CQ3'03

CQ4'03

CQ1'04

CQ2'04

CQ3'04

CQ4'04

CQ1'05

CQ2'05

CQ3'05

CQ4'05

CQ1'06

CQ2'06

CQ3'06

CQ4'06

CQ1'07

CQ2'07

SDAS - % Change

HDD Growth – Computing MarketHDD Growth – Computing Market

0

50

100

150

200

250

300

2003 2004 2005 2006 2007e

Desktop Mobile Enterprise

Traditional PC market still Traditional PC market still growinggrowing

Mobile market surgingMobile market surging

Average capacity growingAverage capacity growing

Mobile society STILL needs Mobile society STILL needs some form of PCsome form of PC

Desktops NOT deadDesktops NOT dead

Units (M)

HDD Growth – External MarketHDD Growth – External Market

0

5

10

15

20

25

30

35

2003 2004 2005 2006 2007e

0

50

100

150

200

250

300

Shipments Avg Capacity

External HDDs boomingExternal HDDs booming

Used in both computing, CEUsed in both computing, CE– <=2.5” externals gaining<=2.5” externals gaining

Video, music content grows Video, music content grows exponentially every yearexponentially every year– Much higher capacity than Much higher capacity than

embedded HDDsembedded HDDs

Margins shrinking – looking Margins shrinking – looking more like (traditional) HDD more like (traditional) HDD marketmarket

Source: TFI, Seagate

Units (M) GB

HDD Growth – CE MarketHDD Growth – CE Market

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007e

3.5" 2.5" 1.8" <=1.0"

CE market evolvingCE market evolving

Inflection point is going to Inflection point is going to come, but when?come, but when?

DVR/PVR will be a primary DVR/PVR will be a primary marketmarket

Other applications are Other applications are small…….small…….

…………..but add up to fuel ..but add up to fuel growthgrowth

Units (M)

How to View CE After 7 YearsHow to View CE After 7 Years

Hype has outpaced results – but STILL an Hype has outpaced results – but STILL an important piece of the long-term growth outlookimportant piece of the long-term growth outlook

PVR/DVR has been frustrating – but promise is PVR/DVR has been frustrating – but promise is intoxicating – for both 3.5” and 2.5”intoxicating – for both 3.5” and 2.5”

2.5” – gaming, AIS, MFP, now some PVR2.5” – gaming, AIS, MFP, now some PVR

<=1.8” – iPod and other handhelds……soon to <=1.8” – iPod and other handhelds……soon to be invisible in a flash?be invisible in a flash?

ConsolidationConsolidation

Leading HDD, component companies profitable, Leading HDD, component companies profitable, so which will have a strategic view?so which will have a strategic view?

Media market looks heavy, and incremental Media market looks heavy, and incremental investment looms in 2009investment looms in 2009

Hitachi GST is on the rumor mill, but will Hitachi GST is on the rumor mill, but will something actually happen? something actually happen?

Where else can consolidation occur? Where else can consolidation occur?

Is SSD a Legitimate Threat?Is SSD a Legitimate Threat?

Short-term, impact not significantShort-term, impact not significant

Longer-term, the threat grows for small HDDsLonger-term, the threat grows for small HDDs

But, there are two key assumptionsBut, there are two key assumptions– NAND flash doubling in density, halving in price NAND flash doubling in density, halving in price

annuallyannually– NAND technology sustains and then transitions easily NAND technology sustains and then transitions easily

in 2010-2011in 2010-2011

SSD vs. HDD – (Today’s) Winner Is…SSD vs. HDD – (Today’s) Winner Is…

2.5" SSDCapacity (GB) 80 32ASP $46 $450$/GB $0.58 $14.06 Avg transfer rate- Read 42 MB/s 67 MB/s- Write 42 MB/s 47 MB/sAvg access time 12 ms 0.11 msMTBF 1,200,000 2,000,000Shock- Operating 300G 1,500G- Non operating 900G 1,500GAcoustic 2.1 dB 0 dBPower (Read/Write) 1.9W/2.3W 0.95W/0.95WBattery life - +10-20 min

SSDs in the EnterpriseSSDs in the Enterprise

There is margin to accept higher costsThere is margin to accept higher costs

There is a business case to use SSDs hereThere is a business case to use SSDs here– Power is lower than HDDPower is lower than HDD– Random IOPs 20-50 times higher than HDDRandom IOPs 20-50 times higher than HDD– 25% cheaper than DRAM today25% cheaper than DRAM today

Costs are still not in line with segment building, Costs are still not in line with segment building, but…….but…….

…………..1 18 GB SSD can replace many 15krpm ..1 18 GB SSD can replace many 15krpm drivesdrives

ConclusionsConclusions

SSDs face serious obstaclesSSDs face serious obstacles

– CostCostAdvantages worth the premium?Advantages worth the premium?Comparing SSD to 1.8” is invalid; 1.8” is nicheComparing SSD to 1.8” is invalid; 1.8” is niche2.5” is the real battleground2.5” is the real battleground

– Low-capacityLow-capacity

– SSD specs still in question SSD specs still in question

– OEM relationshipsOEM relationshipsWill PC OEMs accept price increases when flash Will PC OEMs accept price increases when flash supply is tight?supply is tight?

– There is ZERO precedent for that with HDDsThere is ZERO precedent for that with HDDs

Conclusions (continued)Conclusions (continued)

HOWEVER….HOWEVER….

– HDD suppliers still have time to PLAN!HDD suppliers still have time to PLAN!– New technologies (PMR, patterned media, HAMR, New technologies (PMR, patterned media, HAMR,

etc…) will keep HDD capacities well ahead of SSDetc…) will keep HDD capacities well ahead of SSD– While the capacity gap is shrinking, it is still sizable While the capacity gap is shrinking, it is still sizable

and should remain so for yearsand should remain so for years– Flash-based CE devices means more HDD-based Flash-based CE devices means more HDD-based

storage modules – lots of pictures/video/musicstorage modules – lots of pictures/video/music– Steadier times are coming, so hang on!Steadier times are coming, so hang on!

Thank you!Thank you!