HARD DISK DRIVES: Riding On Price See-saw

Uncertainty in the demand and supply position for some of the most preferred

HDD brands has become a matter of concern in the recent past. Partners are

coming out strongly against the warranty reduction from three to one year by

couple of major vendors.

The hard disk drive (HDD) market has been on a roller coaster ride for quite

some time now. It all started with the unsteady price points in the first three

quarters of year 2001-02, which saw many partners registering a negative growth.

Then came a ray of hope in the JFM quarter of 2001-02 with partners recording

positive growth, albeit a small one.

Things

went well during the first quarter of 2002-03 as well. And just when the going

was good, the HDD market was hit by a slew of price fluctuations and supply

inconsistency in AMJ and JAS quarters of 2002-03.

Despite all these uncertainties, channel partners were still optimistic about

the coming months. But that was before Seagate and Maxtor announced their

decision to reduce the warranty period from three years to one year, bringing

their expectations to zilch.

PARTNERS DISAPPOINTED



Seagate’s decision to follow the example set by Maxtor and Western Digital

and reduce its warranty period did not find favor with majority of channel

partners. They feel that this move will backfire on the company and it will lose

ground to Samsung.

But Sharad Shrivastava, Country Manager, Seagate India, is not disturbed by

the negative reaction from partners to the decision. Says he, "The new

warranty policy continues to cover the majority of defective products, which

typically occur within the first five months of shipment."

"Seagate’s loss has indeed been Samsung’s gain," Ketan Patel of

Creative Computers points out. "Samsung HDD sales have seen an increase of

20-25 percent over Seagate after the latter announced reduction in warranty

period," points out Mrudul Desai, GM, Triune Marketing.

"The new warranty policy continues to cover majority of defective products, which typically occur within the first five months of shipment"

Sharad Shrivastava, Country Manager, Seagate India

Samsung seem to have gained over Seagate in the areas of service and support

as well. "seagate has lost out not just because of the reduction in its

warranty period, but also because of Samsung’s excellent service and

support," says Chennai-based Rakesh Jain, MD, Supreme Computers.

Echoing the same opinion, Sanath Babu, MD, Sri Durga Enterprises says,

"Seagate has a bad replacement cycle which is from 25 days to a month. It

also has a higher failure rate and partners have to courier the defective

products to Chennai with an additional cost." He points out that Samsung

has attractive schemes and a well-defined replacement policy and their failure

rate is low, making it a hot favorite amongst the channel and customers.

Partners feel that Seagate will have to either reduce its prices or go back

to three-year warranty to stay competitive vis-a-vis Samsung. On the other hand,

if Seagate gears up on service front, it might be easier for the company to stay

ahead of Samsung because of its superior technology.

But MS Bhalla, Country Product Manager, Samsung India, sees this initiative

of Seagate and Maxtor as a major threat. According to him, the reduction in

warranty could give Seagate and Maxtor a price advantage against Samsung.

"If Seagate and Maxtor pass on the price advantage obtained through

reductuion in warranty period to customers, then we will not be able to charge a

premium."

However, according to market sources, Samsung’s lower failure rates of

drives will act as a major push factor for the brand. On the other hand, Samsung

claims to be evaluating the option of reducing the warranty time depending upon

the user feedback.

"If Seagate and Maxtor pass on the price advantage obtained through reduction in warranty period to customers, we will not be able to charge a premium"

MS Bhalla, Country Product Manager, Samsung India

Incidentally, Esys Solutions is offering a three-year-warranty on drives that

originally carry one-year warranty from vendors, but is charging a premium for

that. For instance, if you pick up Seagate drive from Esys, you have the option

of buying the extended warranty offered by Esys. According to Esys, the customer

still looks for an extended warranty.

MODEST YEAR



Fiscal 2001-02 was a modest year for the HDD market, with total sales of Rs

4.4 lakh recorded during the JFM quarter according to market analysts. Leading

HDD vendors Seagate and Samsung fought a close contest, but both lost ground to

vendors like Western Digital, Maxtor and Fujitsu. According to sources in recent

times, Seagate’s sales have declined by 10 percent while Samsung has

registered a positive growth mainly because the former has reduced the warranty

period from three to one year.

The Indian HDD market has two prominent segments – the open and the closed.

The closed segment includes MNC brands of PCs that have global sourcing

contracts. The open market would include the Indian PC companies and the market

through channels. And it is in this open market that Samsung claims to have a

marketshare of 50 percent.

"If we were to include only the channel sales, then our figure stands at

65 percent," says Bhalla. However, market sources say that Samsung and

Seagate together constitute 90 percent of the open market and others share the

rest.

Bhalla also points out that the overall HDD market-size grew by 10 percent

during fiscal 2001-02. According to him, Samsung’s sales increased by 24

percent during JAS as compared to AMJ.

“The Indian market is of strategic importance to Maxtor and we have tried to maintain regular supplies of our products”

Yogesh Kamat, Sales Manager, Maxtor,  Singapore.

Nevertheless, in the final tally, Seagate has out-ranked other players in the

HDD market by capturing a lion’s share of 60 percent according to DQ Top-20.

By selling the maximum number of HDDs, Seagate has also emerged as the favorite

vendor among channel partners across the country. Samsung follows Seagate with a

market share of about 30 percent, whereas Western Digital, Maxtor and Fujitsu

comprise the rest of the market.

Vijay Gupta, Proprietor, Tee Gee Sales Corporation, Secunderabad says,

"It’s Seagate all the way though I must say that competition from vendors

like Samsung is catching on." Kishore Kumar, Director of Mehak Data

Systems, points out that Seagate is the brand preferred by corporate segment

buyers. However, Anand, MD of ATI Inc believes that in the entry-level, Samsung

has a majority share.

Channel partners on an average recorded a growth of about five to 10 percent

in HDD sales during the JFM and AMJ quarters. According to Vijay Narsinghani,

Director, Intelligent Computers, the company posted revenues of Rs 60 lakh

during AMJ and JAS 2002. This is a growth of 10 percent quarter-on-quarter.

Ketan claims to have done business of Rs 1 crore in AMJ and JAS. According to

him, the growth as compared to the same period last year was around five to

seven percent.

Kishore Jeswani, Director, Pacific Infotech says, "We have seen a growth

of about 10 percent in last two quarters as compared to the same period last

year." However, he feels that the quarter-to-quarter growth in the HDD

business has been flat.

TRENDS AND BUYING PATTERNS



The key trend that emerged in the HDD market last year was the transition of

the entry level model. In 1998, 4 GB was considered entry-level. Four years from

then, the entry-level capacity for HDD has grown ten times and is at



40 GB.

“Prices are on the verge of getting stabilized. But vendors need to communicate better with partners on their product roadmap and prices”

Mehul Gandhi, Proprietor, A-Plus Computers

Seeing this as a huge opportunity, several vendors stepped up their focus on

the 40 GB offerings, which resulted in a shortage for 20 GB HDDs. The 40 GB

increasingly became the entry-level choice even in the SME and SOHO segments. In

the corporate sector, the demand was mainly seen for 80 GB drives.

In a move to address the HDD shortage, Maxtor showed a positive sign when the

company geared up its distribution network. "We recognize the Indian market

as of strategic importance to Maxtor," says Yogesh Kamat, Sales Manager,

Maxtor, Singapore.

Distributors of Maxtor claim that the demand for Maxtor drives has gone up in

the recent past. "This time around the shortage has been caused due to a

shift from the 40 GB platter to the 60 GB platter technology by a number of

vendors," explains Rajeev Sood, Country Head, CyberStar, one of the three

distributors for Maxtor in the country.

VENDOR PROMOTIONS



To ensure that demand for Maxtor drives continues even after the shortage is

over, the company is looking at floating schemes on its SCSI and IDE range of

drives. "New products up to 120 GB are expected to come in soon," says

Rajeev. The company also held a series of roadshows nationally to exhibit its

technology to partners.

Maxtor also launched the "Find the Diamond with Diamond Max’ program,

wherein lucky partners could win diamonds with the HDDs.

Seagate too went on an channel education drive, talking about its proprietary

3D Defense System which provides instant problem detection for customers and

"peace of mind for partners"!

Samsung used the World Cup football match as the theme for its promotional

campaign in the JFM quarter. The scheme allowed partners to score goals or

points with the products purchased by them. These points could then be redeemed

for various prizes.

The company also has an ongoing online promotion, wherein visitors to its web

site www.samsungindia.com could fill in a form and get a chance to win washing

machine.

OND, JFM AND BEYOND



As of now, nobody is sure when the HDD shortage situation will come back to

normal. Says Mehul Gandhi, Proprietor, A-Plus Computers, "Prices are on the

verge of getting stabilized. But vendors need to communicate better with

partners on their product roadmap and prices."

Resellers hope that normal supplies would resume by January and it should be

business as usual. But it is clear that the recent shortage took most resellers

by surprise, due to lack of any communication from vendors.

But Bhalla of Samsung counters this. Says he, "We shared the reality

with our distributors from the very beginning and informed them that it is

nearly impossible to fill the gap. As far as control over market price is

concerned, there is very little degree of control that we can exercise and

prices are bound to go up."

MC Jain, MD, Mahaveer Computers says, "Vendors have not confirmed the

normalcy in the production of HDDs. So commenting on the stabilization would be

difficult at this point of time."

Many partners opined that the OND quarter might not bring good business,

despite the fact that they are foreseeing a normalcy in HDD prices and

availability of stock. Ketan says, "OND is going to be bad because

customers have postponed their PC buying due to the price hike.">

NEED FOR SPEED



Fiscal 2001-02 also witnessed continued dominance of IDE drives over SCSI

drives, with the former accounting for nearly 85 percent and the balance

contributed by the latter. The 5,400-RPM drive emerged as the de facto entry

level.

However, towards the end of the year, vendors shifted their focus on

7,200-RPM drives. The higher RPM drives constituted one-third of worldwide

shipments. In India, however, it was negligible.

Of every 100 Seagate drives sold, 15 are SCSI models, which shows that demand

for SCSI drives and faster-RPM drives are increasing. Channel partners are

seeing this as a major opportunity as margins are much higher in this product

segment as compared to regular IDE drives.

Also a higher demand for 7600 RPM drives from IBM has been observed from a

niche segment which opts for such high-performance drives. With the increasing

need for server computing among SMEs, demand for SCSI should scale up by 20

percent by the end of this fiscal, say market analysts.

SUNILA PAUL  in Bangalore with inputs from GOLDIE in Mumbai, MOHIT

CHHABRA in Delhi and ZIA ASKARI in Hyderabad