Micropolis Corp is unlikely to be the last casualty to fall a victim to increased competition and falling prices in the storage market. Seven companies now account for almost 94% of disk drive sales, according to figures from International Data Corp – and among the 13 other companies that populate the remaining 6%, there are industry giants such as Hitachi Data Corp, Samsung Electric Co and NEC Corp. A report in the San Jose Mercury News last week predicted a new war of attrition in the storage market, this time between companies that are mostly well-financed. Although the market is seeing healthy growth of between 15% and 20% a year, competitive pressures are making profits scarce. High-end market leader for server storage Seagate Technologies Inc last month warned that its second fiscal quarter would be below expectations due to a continued weakness in demand for high performance products and greater than anticipated pricing pressure. It says it anticipates significant restructuring and other one-time charges likely to be above the $100m in anticipated charges it had already talked about. Seagate has seen competitors such as Fujitsu Ltd, Quantum Corp and Western Digital Corp moving up into its high-end space over the last year or so. Quantum itself, which has posted a series of very healthy results, announced last week that it would take a $40m re-structuring charge in its third quarter and reduce staff by 500 (CI No 3,297). And Western Digital is phasing out its thin-film head products, and will take a charge of up to $30m in its second quarter. The number of companies in the disk drive market has been whittled down from around 100 in the late 1980s to around 20 today. But given the financial strengths of those companies left, and a market that is fundamentally strong, any further consolidation will be a long and drawn out business.
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