In addition to the reduced revenue, the more important margins have also shrunk by 4%, though they are still respectable at 23%. Revenue has been dropping steadily over time as well, down 22% year over year. Much of the decline comes from the weakening PC market but some of it also comes from Seagate own market position. In order to boost margins, Seagate has chosen to leave the low capacity HDD market, read 500GB and below, as they aren’t cost competitive against SSDs. This is because it is nigh impossible for a HDD to drop below $40 due to part cost, making low capacity HDDs a bad bargain against SSDs of the same capacity.
The big holdout for HDDs remains high-capacity drives which offer untouchable GB/$. Still, Seagate can’t rely on those forever so the hope is that their own SSDs gain a foot hold in the market. Another consideration is when will their SandForce purchase finally pay off with new SSD controllers. I love SMI, Phison and Marvell as much as the next guy, but give me some SandForce compression magic!
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