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Storage Drives Are Low on Fibre

Storage vendors are grappling with a shortage of higher-margin Fibre Channel drives.

EMC Corp. (NYSE: EMC)
CEO Joe Tucci said during his companys earnings conference call Tuesday that he is concerned over how the shortage of Fibre Channel drives will affect his company through the first half of this year (see EMC Closes Year With a Bang). Tucci says he expects EMC to fill enough orders to hit its targets, but the shortage will cut into the company’s profit margins until drive vendors catch up with demand.

Seagate Technology Inc. (NYSE: STX), which supplies at least 50 percent of enterprise hard drives to system makers worldwide, confirmed the shortage last week as its executives admitted they had trouble keeping up with orders at the end of 2004 (see Seagate Reports Q2).

“Information from various sources suggests there is an industry wide enterprise drive shortage," writes analyst Tom Curlin of RBC Capital Markets in a research note today. He says lead-time for EMC systems extended to three or four weeks in December and current delays at Hewlett-Packard Co. (NYSE: HPQ) are two to three weeks because of the drive shortage.

The shortage is not a bad deal for Seagate or its competitors, which include Fujitsu Computer Products of America Inc., Hitachi Global Storage Technologies (Hitachi GST), and Maxtor Corp. (NYSE: MXO). The drive makers have traditionally lowered pricing by around 10 percent every quarter to win the storage vendors’ business, but the drive shortage now gives them leverage.

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