Computer Storage Devices

SIC 3572

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in manufacturing computer storage devices.

Industry Snapshot

The computer storage industry manufactures tape, magnetic, and optical storage and retrieval devices for computer systems. These products range from the common floppy and hard disk drives built into desktop computers to stand-alone storage management systems used in large enterprise networks.

Demand for storage capacity and performance has risen sharply, as microprocessors have grown faster, software applications have become more resource intensive, and network computing has become more pervasive. Attempts to harness processing power and offer users more features have made the typical new software application require vastly more storage space than earlier versions. On personal computers, storage needs have further evolved and multiplied because of expanding multimedia features and content, such as DVD movies and downloadable music on the Internet. Meanwhile, corporate systems have had to cope with escalating storage and processing needs from internal users, as well as from the Internet.

Shipment values for computer storage devices and equipment, which totaled $9.0 billion in 2000, had fallen to $7.2 billion by 2009. Despite the myriad forces stimulating demand for storage devices, the industry, like other computer hardware segments, has been hurt by fierce price competition. Such pressures have prompted significant consolidation within the industry and have brought cost cutting to the fore at several storage device companies. In addition to increased price competition, the market for storage devices was at the mercy of a weak economic climate in the 2000s. This presented challenges across virtually every product segment in the computer industry, as manufacturers faced reduced spending and confidence levels in both the consumer and corporate sectors.

In the late 2000s, the industry continued to face both challenges and opportunities associated with storage outsourcing services, or so-called storage service providers (SSPs). Such Internet-based services offer storage space and management tools that clients can simply connect to and use, enabling companies to avoid purchasing and maintaining storage hardware and software themselves. In the 2000s, the nascent SSP field was altering how storage devices were used and marketed. It also presented an opportunity for makers of storage equipment to branch into services. By 2010, telecommunication giants like Verizon and AT&T were involved in this sector.

Organization and Structure

Computer memory storage devices can be classified as either optical or magnetic. In addition to optical and magnetic storage, semiconductor memory chips that store data and programs in the form of digital impulses were widely used by the late 2000s.

Magnetic Storage.
Magnetic devices record information in the form of magnetized spots that represent a binary code--a series of digits represented by either 1 or 0. A magnetized head suspended slightly above the surface of a medium reads and writes information on the disk. To record information, electrical charges that register a pattern on the surface of the magnetically sensitive medium are delivered through the head. To read data, the same head detects and converts spots into electrical impulses. The data can be retained indefinitely, or erased and replaced with new magnetic spots.

Once the most widely used method of computer memory storage, the magnetic tape machine stored data on 4-inch-wide or 8-millimeter tape coated with a magnetically sensitive compound. Tape units typically read and write at a rate of 183 to 722 kilobytes per second and in the late 2000s could store up to 1 terabyte of information. Some units, called autoloaders, combine several tape cartridges to maximize speed and capacity.

The advantage of magnetic tape storage is that massive quantities of information can be stored in a relatively compact space in a relatively short amount of time. The drawback of tape systems, however, is that the tape must be read from one end to the other in order to retrieve and store information. For this reason, magnetic tape is most often used to copy, or backup, large amounts of data stored on a network or mainframe system (or for other purposes in which stored data can be sequentially accessed). In the early 2000s, almost 706,000 magnetic tape storage components valued at roughly $1.9 billionwere shipped by U.S. manufacturers.

Another type of magnetic storage device used frequently in the 1980s and 1990s were floppy diskette drives. These read and write information to a single rotating disk that can be removed from the drive. They were used to transfer and temporarily store information on 3.5-inch or 5.25-inch diskettes. Floppy drive technology was essentially the same as that used in hard disk drives, but floppy disks were made of coated synthetic material rather than metal. By the late 2000s, floppy disks had been ousted by newer methods.

A third type of magnetic storage is the hard drive. A hard drive device resembles a stack of small metal plates that rotate at a constant speed. Between each plate, a magnetic head is positioned on an arm that sweeps across the disk's surface. Each plate is coated on both sides with a magnetically sensitive compound on which a head can read or write information. Every bit of information stored on the disks is accessible by the heads each time the stack rotates.

The advantage of hard drives is that they can quickly retrieve information nonsequentially. Furthermore, because they are compact, they make excellent storage devices for microcomputers. Disk drives with greater capacities are commonly used in workstations, minicomputers, local area networks (LANs), and mainframes. Traditionally, hard drives for larger computer systems were 14-inch, 10-inch, or 8-inch drives. PCs typically had 5.25-inch, 3.5-inch, 2.5-inch, or 1.8-inch drives.

In the 2000s, the external hard drive--as a back-up to the computer's internal hard drive--became very popular and allowed users to store even more information. These portable devices are connected to the computer via a high-speed interface cable such as a USB plug. As of 2010, external desktop hard drives typically held 500 to 1,000 gigabytes (GB), although the largest, made by Seagate, could hold up to three terabytes.

Computers communicate, or interface, with disk drives through a controller. Most drives comply with high-performance interface standards. In the 1990s, the enhanced small drive interface (ESDI) was replaced by parallel interfaces, which could transmit multiple bits simultaneously. These included the small computer systems interface (SCSI) and the advanced technology attachment (ATA), also known as intelligent drive electronics or integrated drive electronics (IDE). SCSI and ATA drives are more easily integrated into other manufacturers' products; consequently, they are the most common types of drive.

Optical Storage.
Optical storage devices use laser beams to read information on a rotating synthetic disk. The first type of device developed was the compact disc-read only memory (CD-ROM) drive. CDs are composed of three layers: an overcoat that protects the information on the disk; the dye layer, where the information is recorded as digital bits of information; and a mirrored base that reflects the laser back to its source.

CD-write once read many (CD-WORM) drives and discs allowed users to store their own information on a disc, though that data could not be erased and replaced with new information. CD-recordable (CD-R) was a write-once technology like the CD-WORM that became one of the first of such devices to be priced within the consumer/small business market. The erasable CD-ROM had the capability to rewrite or replace existing data. In the late 1990s the DVD, or high-density compact disc, began to gain popularity. DVDs have more capacity to handle video with storage levels of 4.7 GB. A dual layer DVD can hold up to nine GB. Conventional CD-ROMs used in most PCs have a capacity of roughly 650 megabytes (MB).

Capacity in the optical storage segment of the industry continued to grow, and the Blu-ray disc (BD) was the next step in optical storage technology. Represented by the Blu-Ray Disc Association, BDs can be write-once or rewritable and can hold up to five times more data than a DVD. BDs can have one, two, or three layers, and in 2010, a four-layer disc that could hold up to 128 GB of data was in development.

The advantage of optical storage is that comparatively massive amounts of information can be inexpensively stored on a small, portable medium. DVDs and BDs are often used for storing such memory intensive applications as video games and other programs with elaborate graphics. The disadvantage of optical storage is that information retrieval is significantly slower than that of magnetic devices. Also, optical storage is relatively inflexible because it does not allow users to easily write and erase information.

Semiconductor Memory.
Another form of computer storage is semiconductor memory. This can come in the form of read-only memory (ROM), magnetoresistiverandom access memory (MRAM), or flash memory. All use a semiconductor chip that stores programs and data in the form of digital impulses. By the 2000s, flash memory had become a very popular method of storing smaller amounts of data. Flash memory cards were sometimes used in personal computers but more often were designed for use with such devices as digital cameras, cell phones, and digital audio players The flash drive (also called jump drive) was the most popular form of portable storage for PCs. The flash drive is a small, removable storage device that weighs less than an ounce and is generally integrated with a USB (universal serial bus) or FireWire interface. In the mid-2000s, most computer manufacturers had stopped including floppy disk drives in their machines and replaced them with USB drives. USB flash drives can typically hold up to 256 GB, as of 2010, and can be erased and reused. As compared to floppy disks, flash drives hold thousands of times more information and are smaller and faster, in addition to being more reliable because of their lack of moving parts. The USB Implementers Forum Inc. (USB-IF) was founded to promote the USB drive industry, and in 2010, it bought out the Personal Computer Memory Card International Association (PCMCIA), combining the two organizations into one.

Competitive Structure.
A multitude of different organizational structures are represented in the computer memory storage industry. The industry is highly fragmented and is characterized by technological volatility. Firms that do not develop and produce breakthrough products are often forced to compete in a high-volume, low-margin, commodity-like market environment. Leading firms, in contrast, can reap huge short-term profits as a result of innovation. These firms, though, must often risk large research and development expenditures to generate new technology for rapidly shifting, unpredictable markets.

Original equipment manufacturers, such as IBM and Hewlett-Packard, produce or purchase devices that are integrated into their own computers. Other large vendors, such as Seagate Technologies, produce devices that are installed in, or used with, other computer manufacturers' products. These companies tend to purchase few of their components from other companies. In contrast to the more vertically integrated companies just described, several companies utilize foreign manufacturers to produce their drives or to manufacture many of the components that go into their storage devices.

Background and Development

The punch card, the first storage mechanism used with a mechanical computer, was introduced by Herman Hollerith in 1886 to help the U.S. Bureau of the Census calculate demographic data. The punch card concept was actually developed by Charles Babbage and was demonstrated in his 1833 design of the Analytical Engine. Although Babbage's engine was never built, it provided a model for Hollerith and others. Punch cards allowed computer operators to automatically repeat arithmetic operations on numbers that were represented by holes punched into successive cards.

In 1944, IBM developed the first large-scale automatic digital computer, which was conceived by Howard H. Aiken of Harvard University. The Automatic Sequence Controlled Calculator (nicknamed the Mark I) utilized more than 750,000 parts and relied on punched cards and punched tape to store data. The device was used to compute ballistic data for defense purposes and could calculate three additions per second. In 1946, Bell Telephone Laboratories developed a similar computer that stored and read sequences of instructions on loops of paper tape.

The Electronic Numerical Integrator and Calculator (ENIAC), which was completed in 1945, stored numbers and computing instructions entirely by electronic circuits containing more than 18,000 vacuum tubes. Although ENIAC still used punched cards for input and output data, the computer could electronically store 20 numbers. The computer had to be programmed by tedious rewiring in order to accomplish different tasks. Despite its limitations, the computer was used until 1956.

During the mid-1940s, researchers realized that a major hurdle in the advancement of computer technology was a lack of adequate resident memory storage capacity. During the 1940s and 1950s, four storage techniques were developed: acoustic delay lines, magnetic drums, electrostatic devices, and magnetic cores. Mathematician John von Neumann was one of the most influential developers of storage technology during this era.

The first magnetic core computer, the Whirlwind, was developed at the Massachusetts Institute of Technology in 1953. By the mid-1950s, magnetic core memory had become the principal storage system. At this point, many companies realized that computer production and design had the potential to be a viable industry. IBM, Sperry, Rand, Burroughs, RCA, General Electric, and other companies quickly began introducing computers for a variety of commercial and institutional applications. By 1960, approximately 5,000 stored-program computers were operating in the United States. Throughout the 1960s, this number doubled every two to three years.

As the computer industry expanded during the 1960s and 1970s, the need for mass memory storage devices that could hold programs and backup data drove the development of a variety of mechanisms. Some of the most successful storage devices used magnetic "Winchester" technology. These devices, which were developed by IBM in 1956, evolved into what is now the magnetic hard disk drive.

The 1980s.
During the 1980s, the use of Winchester drives began to dominate the memory storage industry. Prior to disk storage, magnetic tape was the industry's primary information storage medium. Advancements in disk technology, though, quickly outpaced the speed and efficiency of tape systems--resulting in the obsolescence of tape for most applications.

Augmenting growth of both hard disk and floppy disk drives in the 1980s was the proliferation of the microcomputer. Throughout the 1980s, these personal computers (PCs) relied solely on magnetic disk technology for memory storage. Sales of PCs skyrocketed from less than 500,000 per year in 1980 to 10 million in 1990; the demand for disk storage devices soared. Growth in workstations, microcomputers, and mainframes also spurred demand. By 1990, manufacturers were shipping more than 26 million Winchester hard drives and about 40 million floppy drives per year.

Despite the decline of market share attributable to magnetic tape drives, this segment experienced steady growth during the 1980s and early 1990s. By 1989, manufacturers were shipping about 1.6 million tape drives per year, most of which were being used to backup hard disks and network systems.

As computer memory storage device manufacturers entered the 1990s, new storage technology was beginning to gain widespread attention by the industry and consumers. Optical memory, which had been viewed essentially as an experimental or specialty technology during the late 1980s, was beginning to establish itself in mainstream business and consumer markets. There was also an increasing interest in semiconductor memory.

The 1990s.
Magnetic disk drives continued to dominate industry offerings in the 1990s. The number of hard drives sold, for instance, climbed steadily to 31 million in 1991 and to 37 million by 1992. Floppy drive sales volume also climbed, much as it had during the 1980s, to about 45 million per year by 1993. Despite a massive shakeout in the PC market, which was placing severe downward pressure on PC prices, many storage device producers enjoyed solid profit growth in the early 1990s. This was partly a result of PC industry price wars that were boosting PC unit shipments.

Still, disk drive prices continued to drop for all but the latest models. While the most advanced drives still provided comfortable profit margins, mainstream technology grew ever cheaper and less profitable. Between February and June of 1993, for example, disk drive prices dropped 25 percent.

To counter the shift toward commoditization, storage device makers in the mid-1990s tried to expand their development and production of technologically superior products that offered higher profit margins. Some firms focused on 2.5-inch and 1.8-inch hard drives for notebook computers to stimulate sales. Many of the weaker competitors were bought out.

By 1995, several companies had expanded the marketing and manufacturing of removable media, both tapes and disks, into the home computer market. Companies such as Iomega and SyQuest developed affordable tape drives and removable disks available for $150 to $200, with cartridges and disks costing between $20 and $25 each. These removable units could hold between 100 MB and 2 GB of information to backup or enhance hard drive capacity.

Around the same time, CD-ROM drives became standard accessories on most new computers. CD-ROM drives were originally targeted at libraries and research organizations because CD-ROMs's capacity was so much greater than anything used in the consumer market. However, the popularity of games and multimedia software, along with the mushrooming size of general applications, made CD-ROMs a requisite feature, lest home users and corporate administrators be forced to juggle dozens of floppy disks in order to install a single program. The speed of CD-ROM drives rapidly increased, as the technology reached mainstream status. By the late 1990s, recordable CD drives and the newer digital versatile disc (DVD) technology, geared toward reproducing full-length movies and holding other storage-intensive applications, were also increasingly common.

Magneto-optical (MO) drives accounted for only a small portion of industry sales in the late 1990s. These storage devices combined the ease and portability of a floppy disk with the capacity and speed of a hard disk. The systems used both magnetic and optical technology. The drive read and wrote the disk with a read/write head assisted with a pulse-modulated laser beam. MO drives came in two sizes, 5.25-inch and 3.5-inch, and could store between 128 MB and 2.3 GB of data.

Corporate storage and reliability needs fueled vigorous demand for redundant arrays of inexpensive (or independent) disks (RAID), which were first introduced in 1987. RAID storage systems allowed several hard drives to work in concert as a single, high capacity, relatively inexpensive, and dependable memory backup device. Applications included backup storage for mainframes, networks, and other high-end systems. Sales of RAID units skyrocketed from just 16,000 in 1991 to well over a million units by 1998. RAID product revenue also grew tenfold from 1992 to 1998, from $1.2 billion to more than $12 billion. By the late 2000s, there were several levels of RAID, numbered sequentially (e.g., RAID 3, RAID 4, and so on).

Flash memory cards, first developed in the early 1990s, were another growth vehicle for the industry by the mid- and late 1990s. The compact, energy-efficient, high-capacity devices proved to be weighty contenders in the bid to serve the rapidly expanding notebook and laptop computer markets.

During the late 1990s, hard drives--which cost an average of $11.54 a megabyte in 1988--continued to fall in price while increasing in size. According to the Disk/Trend Report, the price per megabyte of hard disk space was expected to continue to tumble, falling from 4.3 cents in 1998 to an estimated 0.3 cents in 2002.

Tape drive sales were mixed in the late 1990s, with sluggish performance from devices aimed at individual PCs but better results from drives aimed at servers. Newer tape automation systems gained popularity because they reduced the workload associated with managing tape backups. Tape drive manufacturers hoped to secure better footing in the network storage arena by offering higher capacity formats, including the new linear tape open (LTO) standard backed by three of the industry's biggest participants--Hewlett-Packard, IBM, and Seagate. A key selling point for tape technology was its low price compared to disk drives.

The 2000s.
In the early 2000s, removable and optical storage was one of the industry's slowest segments as far as revenue growth. The main growth technologies were DVD-ROM drives and writable CD and DVD drives, whereas revenues from floppy drives and cartridge drives had stagnated.

The computer storage industry continued to contend with the market paradox of unprecedented demand by computer users for storage capacity and versatility and the unwillingness to pay commensurately more for storage devices. During the mid-1990s, most new hard drives had a capacity of 1 GB. However, by 2002 most PCs contained hard drives in the 20 to 60 GB range. Maximum hard disk size increased from 27.2 GB in late 1999 to 250 GB in late 2002. Prices fell from $14.67 per GB to $1.20 per GB, respectively. As prices per GB fell, so did the physical size of hard disks. For example, in 2002, Toshiba manufactured a 20-GB disk drive that was less than two inches wide. The drive was used by Apple in its popular iPod music player.

In the early 2000s, hard disk drives continued to be the industry's strongest category. In 2002, the industry was forecast to ship an estimated 217 million hard disk drives, according to Gartner Dataquest. U.S. companies held a dominant share of the world market. Driving growth in the hard disk categories were non-PC devices, especially digital video recorders, set-top boxes, digital audio recorder-players, video game systems like Microsoft's Xbox, personal digital assistants (PDAs), and different kinds of still and motion digital cameras. These devices were expected to significantly increase the demand for hard disk drives well into the 2000s.

The business market continued to provide solid demand for RAID systems. More network-oriented storage systems, like storage-area networks (SANs) and network-attached storage (NAS) devices, also remained popular in the early 2000s. SANs combine multiple disk arrays with controller hardware and software to create stand-alone and interdependent storage systems for large networks and heavy-traffic distributed environments. NASs, on the other hand, provide supplemental storage capacity to smaller networks without taxing existing servers.

In the early 2000s, tape was still a popular storage medium for many corporate information technology (IT) departments, many of which had made considerable investments in tape systems over the years. In late 2002, IBM, StorageTek, and Quantum joined with EMTEC, Fujifilm, Imation, Maxell, RSS, Seagate, and Sony to form a new industry association called the Tape Technology Council. According to the council, its main objective was "to provide unified promotional activities to increase the awareness of tape technology for data storage applications." This baffled some observers, since a number of these firms (including IBM, StorageTek, and Quantum) manufactured newer emerging technologies like advanced technology attachment (ATA) hard drives that competed with tape devices in the corporate sector.

Current Conditions

After the declining market and economic recession of the late 2000s, the computer storage industry was waiting on signs of a recovery. In the meantime, technology in the industry continued to change to offer more storage in a smaller space. For example, in June 2010, Seacrest announced the release of the world's first three terabyte external desktop drive, which, according to a press release, could hold "120 HD movies, 1,500 video games, thousands of photos or countless hours of digital music." Makers of flash drives also strove to increase capacity and decrease size. SanDisk, for instance, created the smallest flash drive yet in July 2010 when it came out with the Cruzer(R) Blade. This device was about the size of a paper clip and weighed less than a penny. According to CDRLabs.com, the drive was environmentally friendly, creating "a tiny footprint," but with capacity of up to 16 GB.

The computer storage devices industry also watched carefully the growth of the storage service provider (SSP) industry. SSPs offer what was called cloud storage, in which data is saved on a remote database through the Internet. Because cloud storage eliminates the need for physical devices to back up data, some believed its growth could pose a threat to the computer storage devices manufacturing industry in the future.

Industry Leaders

The storage industry consists of both integrated and independent manufacturers. Among the largest integrated players are IBM and Hewlett-Packard, which dominate certain product segments of the business, especially in technologies geared toward large companies.

Of the independent producers, Seagate Technology LLC of Scotts Valley, California, was one of the largest makers of storage devices in 2010. In its fiscal year 2010, Seagate sold 193.2 million disk drives and achieved revenues of $11.4 billion. Employees numbered about 55,000 worldwide. The company achieved its dominant position in part through acquisitions, such as its 1999 purchase of Conner Peripherals, its closest competitor. The firm continued on the acquisitions path in the 2000s when it purchased several firms, including MetaLINCS, EVault, Maxtor Corp., and Mirra Inc. Seagate remains one of the most vertically integrated firms in the industry; it manufactures most of the parts that go into its drives. Texas Pacific Group and Silver Lake Partners led a group of investors that brought Seagate under private ownership in 2000.

EMC Corp. of Hopkinton, Massachusetts, led the fast-growing market for high-end network storage subsystems in the 2000s. The company established itself as the premier provider of top-of-the-line storage systems, software, and services to major corporations. EMC faced strong competition from the likes of IBM, Hewlett-Packard, and Hitachi Data Systems. By 2010, however, the company was the leading provider of RAID storage systems. With 43,200 employees, EMC recorded annual sales of $14.0 billion in 2009.

Quantum Corp. of San Jose, California, was another leading independent in 2010. Like Seagate, Quantum relied on strategic acquisitions to expand its business, including the takeover of the former Digital Equipment Corp.'s storage device business. The company is a major vendor of tape and disk-based drives, such as those using the digital linear tape (DLT) format. With 1,800 employees in 2010, the company reported sales of $681.4 million in fiscal 2010.

Another industry leader was Western Digital Corp. of Lake Forest, California, which focused on drives for PCs and had $9.8 billion in fiscal 2009 revenues with 45,991 employees. Several smaller companies that manufactured computer storage systems in the early 2000s, including Maxtor Corp., Western Digital Corp., and Iomega, were bought out by larger firms later in the decade.

Workforce

The computer storage industry workforce includes a higher proportion of electrical and electronics engineers than most other U.S. industries. The industry also hires large numbers of trained precision assemblers, as well as a significant number of parts assemblers and fabricators.

During the late twentieth and early twenty-first century, employment levels for storage device manufacturers fell along with many other segments of the computer industry. In 1997, 42,012 people were employed in the industry. By 2000, this figure had fallen to 32,296, and by 2008 was nearly half that, at 16,585.

The number of both precision and parts assemblers employed by manufacturers was also expected to decline. Automation, as well as outsourcing of labor tasks to foreign countries, was expected to account for much of this loss. Clerical positions were also expected to decline drastically. Even the demand for engineers will fall, as companies form corporate alliances that allow them to reduce overlapping research and development expenditures.

On the bright side, the demand for systems analysts and computer scientists was expected to increase. Furthermore, opportunities could become available to professionals who can help develop cutting edge technologies, particularly for optical and semiconductor products.

Research and Technology

Historically, industry research and development has resulted from both strategic alliances and government initiatives. Examples were the Optoelectronic Technology Consortium, established by General Electric, AT&T, Honeywell, and IBM to advance domestic optical technology and backed by $8 million in initial funding, and the Microelectronics and Computer Technology Corp., a five-year research project on holographic mass-storage subsystems that received $10.3 million in federal grants and $12.7 million from consortium members.

Memory storage devices continue to play a leading role in the advancement of computer technology, as they have since the birth of the computer industry. The role of the memory storage device industry was becoming increasingly blurred, however, as the computer, telecommunications, consumer electronics, information, and entertainment industries converge into a massive multimedia industry that interconnects various technologies and services. Multimedia, by its most basic definition, combines data, audio, and video signals into one digital stream.

The dominant technologies that are driving this metamorphosis are data processing, storage, interface, fiber optics, wireless, compression, and digital broadband switching. As a result, companies from many industries find themselves competing and cooperating with firms in completely separate industries. Firms that once delivered memory storage solely for the computer industry, for example, are selling their technology to a wide range of markets. The advancement of flash memory technology provides evidence of this trend. Semiconductor and disk storage companies now cooperate to develop flash memory storage products not only for computers but also for digital cameras, telephones, automobiles, and other devices. In addition, new products were coming on the scene daily in the early 2010s--all of them faster, higher capacity, and smaller in size than previously thought possible in the days of the 5.25-inch floppy drive.

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