Market Analysis: Western Digital Corporation
The computer data storage market has experienced remarkable growth due to investments in research and development by industry players. Datamonitor (2010) asserts that the lucrativeness in the digital data storage market segment has been spurred by the consumption of data storage components by institutions and individual customers. The emergence of the information age has remarkably stimulated the industry’s growth due to the increase in the volume of generated data (Simpson, Siddique & Jiao, 2006). This growth has provided a feasible business opportunity for innovation in data storage systems.
Innovation in technology has led to a significant reduction in the size of storage devices while increasing capacity (Tanner, 2015). Another distinguishing aspect includes the pressure for companies to reduce the price of their products (University of Oregon Investment Group, 2011). Most industry players are increasingly focusing on reducing operational costs to develop a high competitive edge (Deegan and Tanner, 2006). The market is expected to experience remarkable growth due to an increase in the rate at which individuals and enterprises are adopting storage devices. Additionally, the integration of cloud computing technology among businesses is expected to drive the demand for data storage devices (Markets and Market, 2017).
Economic growth in emerging countries such as Asia and Latin America is expected to stimulate the demand for data storage devices (Simpson, Siddique & Jiao, 2006). Another notable aspect is the trend of consumers shifting from traditional hard disk drives to flash-based solid-state drives (SDDs) due to their growing reliability (Farley, 2013). The growth in global internet accessibility is also expected to stimulate the demand for storage devices as global content availability increases (Cesaroni, Gambardella & Garcia-Fontes, 2004).
The value of the computer data storage market has undergone remarkable growth over the years. Between 2006 and 2010, the industry’s total revenue increased to $167.8 billion, representing a compound annual growth rate of 3.5% (Datamonitor, 2010). A report by Datamonitor (2010) projected the industry’s CAGR to grow to 7.9% between 2010 and 2015, increasing the market value to $245 billion. In 2014, the Global Digital storage device market amounted to $1.36 billion, expected to grow to $6.27 billion by 2022, with a CAGR of 21.05% between 2014 and 2022 (PR Wire, 2015).
The global digital storage devices market is substantially large and categorized into different classes including hard disk drives, memory cards, optical disk drives, floppy disks, memory cards, and solid-state drives (PR Wire, 2015; Mamun, Guo & Bi, 2006).
Market Structure and Competitive Landscape
The computer technology industry is characterized by an oligopolistic market structure dominated by a few large firms (O’Connor, 2004). Over 98% of total sales in the global hard drive disk industry are generated by three main companies: Western Digital, Toshiba, and Seagate (University of Oregon Investment Group, 2011).
The global computer storage and peripherals industry, in which Western Digital operates, is characterized by extensive consolidation, downward pricing pressure, and competition (Gilling, 2015). Industry players are investing considerably in research and development to develop a competitive edge (Datamonitor, 2010). Western Digital Technologies Incorporation faces intense competition from companies like Lenovo, Transcend Information, Intel Corporation, and others.
Despite intense competition, Western Digital has managed to attain a substantial market share in the global hard disk drive market. Market Realist's 2017 study showed that Western Digital dominates the industry with a market share of 42%, followed by Seagate and Toshiba (Market Realist, 2017).
|
Company |
Market share |
|
Western Digital |
42% |
|
Seagate |
35% |
|
Toshiba |
23% |
Table 1: (Source: Rogers, 2017)
In spite of their strong market share, the industry is projected to be affected by a decline in the volume of sales in personal computers. Rogers (2017) reports that the data storage market segment has experienced a decrease in the volume of hard disk drive shipments globally over the last few years. For instance, the volume of HDD shipments declined to 138 million units in 1Q14 (first quarter of 2014) from 163 million units during 1Q10 (first quarter of 2010) (Rogers, 2017). This trend might negatively impact the volume of HDDs that Western Digital ships globally, thus affecting its sales revenue. However, in 2017, an increase in the volume of personal computer sales is expected. The firm’s performance is also likely to be positively influenced by the growing demand for mobility and cloud-based applications (Rogers, 2017), which could boost the volume of data storage devices that Western Digital ships globally.
In spite of the dynamic nature of the digital data storage industry, Western Digital Corporation has managed to maintain market dominance in terms of sales revenue. By the end of 1Q17 (first quarter of 2017), Western Digital had a sales revenue of $17.7 billion, followed by EMC, whose sales revenue amounted to $15.9 billion. One of the factors enabling Western Digital to maintain dominance in the global digital data storage industry is its commitment to industry consolidation, such as the acquisition of SanDisk and Hitachi Global Storage Technologies (Rogers, 2017)
Graph 2: (Source: Rogers, 2017)
Porter's Five Forces
Although the global digital data storage industry is characterized by an oligopolistic market structure, competition within the industry is prevalent, with no restrictions imposed. To gain competitiveness, Western Digital must formulate and implement effective strategies. To achieve this, it should focus on developing a sufficient understanding of the prevailing market by employing Porter's Five Forces framework. According to Porter (2008), this framework provides insight into the level of competition and attractiveness of an industry, enhancing the effectiveness of business strategy development. An analysis of the global computer data storage industry using Porter's Five Forces reveals the following characteristics:
Barrier to Entry (High)
The global digital data industry is capital-intensive, requiring heavy financial capital investment for competitiveness. This high capital requirement acts as a significant barrier to entry, hindering new firms from entering the industry. Additionally, firms face challenges in competing on price due to dominance by large firms. Consolidation, adopted as a competitive strategy by many industry players, further increases the barrier to entry. Western Digital's adoption of consolidation, such as the acquisition of Hitachi Global Storage Technologies in 2011, positions it to maintain dominance despite increasing competition.
Buyer Power (High)
While the industry is dominated by three major firms, the presence of other players presents customers with alternative choices for digital data storage devices. Competition among OEMs, including Western Digital, has reduced switching costs for consumers, increasing buyer power. In response, industry players are increasingly competing on price, leading to a price war that ultimately benefits customers.
Supplier Power (Moderate and Declining)
Suppliers within the digital data storage industry have moderate power, depending on their ability to procure raw materials to meet demand. However, industry consolidation reduces supplier power, as firms acquire supplier companies, reducing dependence on external suppliers.
Threat of Substitutes (Low and Rising)
The threat of substitutes in the industry is low, with the HDD market segment dominating over solid-state drives. While investment in research and development may increase the number of substitutes for HDDs in the future, Western Digital must focus on investing in SSD technology to maintain competitiveness.
Rivalry
Consolidation in the industry has reduced the number of players, with firms focusing on leveraging economies of scale to compete on pricing. Western Digital's establishment of economies of scale positions it to deal with growing price pressure in the industry.
Summary
The digital data storage market is oligopolistic, dominated by three main firms. Projected growth in demand for data storage devices, competition based on price, and industry consolidation are notable trends. Despite intense competition, Western Digital has developed competitiveness and should invest in research and development and adopt effective competitive approaches to survive in the industry.
References
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