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Hard Drives: No Flash in the Pan

Chang Gyu Hwang is chief executive of the world's largest supplier of flash memory chips, South Korea's Samsung. Over the last few weeks, he has been quoted as hailing the start of the "Flash Rush Era." Flash memory chips -- specifically, a type of flash known as NAND, which is used to store data in devices such as music players and digital cameras -- will in time challenge and may even replace small hard drives.

To Bill Watkins, chief executive of Seagate Technology (STX), the world's largest manufacturer of hard drives, that sounds like a challenge. Samsung also manufactures hard disk drives, but in much smaller quantities. "It's kind of funny," says Watkins. "I see so much opportunity that I would be more than willing to take his hard drive unit off his hands."

CHRISTMAS CHEER. Watkins doesn't dispute that the flash memory business is booming. Moreover, a research report by W.R. Hambrecht & Co. says that supply of flash memory chips will be especially tight in the coming two quarters, particularly as demand for digital music players and digital cameras spikes heading into the holiday season. Hambrecht predicts consumers will scoop up 90 million digital cameras and 80 million music players this year.

What's more, flash is getting better all the time. Earlier this month, Samsung announced 16-gigabit flash chips that it will combine into 32-gigabyte flash memory cards within the next year. A year or two beyond, flash density could break the 100-gigabyte threshold -- about where the leading edge of notebook hard drives resides currently.

But Watkins isn't worried about hard drives becoming obsolete anytime soon -- not with a market of 380 million units this year and 420 million next year, according to market researcher IDC. The CEO of the $7.5 billion company says that flash memory and hard drives will coexist for some time.

"FIGHT IT OUT." "Flash makes sense where the need for capacity is smaller, where environmental factors are critical, and where battery life is critical," he says. "But there are going to be a lot of places that flash can't touch, where there are streaming-video applications [and] a hard drive is the better choice by far. And then there's going to be this middle ground where we're going to have to fight it out."

BusinessWeek Online reporter Arik Hesseldahl talked with Watkins about competition from flash memory makers, the advantages of hard drives, and new markets for the storage maker. Edited excerpts follow:

People are increasingly worried about battery life with mobile devices, and flash has a definite advantage there. How do you intend to address that as demand for longer battery life increases?

We're getting a whole lot better on power consumption. But we've found that when given a capacity need our customers will work with the power consumption. I think flash will always be more efficient at power consumption. And where power consumption is critical, people are going to use flash.

But when we ship into the MP3 player market, we don't see power as being a big issue with customers. There are other things in MP3 players using up power.

What advantages do hard drives have other than being able to store higher capacities than flash?

If you want to have a very rich audio or video experience, no matter what you do, you're going to need a hard drive. Flash memory can't handle the data rates that a hard drive can. The data rates on flash are too slow to handle high-quality video and audio.

Toshiba (TOSBF) has pushed the boundary on small-size disks with its .85-inch hard drive. Will you follow?

We don't believe that is the right form factor. As we compete with flash we need to maintain a 4-to-1 ratio, meaning that for whatever you can get in flash, we should be able to store four times as much data for the same cost. We can maintain that with one-inch drives. We don't think we can do that with .85-inch drives. And we don't think getting smaller is the right thing.

There has been a lot of attention paid in recent months toward small hard drives in mobile phones. Are you attracting that business?

When we first started talking to the mobile-phone guys, they wouldn't talk to us. They only needed one or two gigabytes' worth of storage, and for that flash made better sense. But now phones are playing music, they're displaying TV shows. Now what they need is a lot of storage, and they're talking about 10 or 20 gigabytes.

You have recently made some product announcements for hard drives aimed at the automotive market. What opportunities do you see there?

The auto makers want to do a few things. First, they want to put entertainment in the back seat. Already, cars have CD and DVD players, but at some point you're going to want that entertainment content to be downloaded from somewhere in an on-demand way.

They also want to sell you a service in the front seat with GPS [Global Positioning System] technology connected to it. You might call someone up and ask to download maps of San Francisco as you're driving to San Francisco, and those maps will be stored on a hard drive.

The third place [auto makers] want to put a hard drive is in the engine. They want to collect lots of data about how well the engine is running and what's going on with each component -- and that could have a big impact on warranties.

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