Profiting from the shift to Ultrabooks
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The first thing that comes to my mind when I go to purchase any electronic gadget is, how many months before it becomes outdated. That’s the same business practice that perhaps, most businesses earn their revenues from. I purchased a laptop nearly a year ago, thinking that this choice might just turn out to be future proof. Yet here I am looking at the new range of ultrabooks, which almost every major manufacture produces now. Most companies are cutting production of regular laptops and are increasing production on ultrabooks. The new models, not only offer better battery backup, but are also ultra-light and ultra-comfortable to carry, which made me wonder that how can I profit from this technology shift.
Ultrabooks use a new breed of hard disks, which are called Solid State Drives (SSD), which unlike the conventional hard drives have no physical moving parts. The presence of billions of transistors to store data, instead of a rotating spindle, has increased the access speeds and data transfers rates significantly, along with a good reduction in power consumption and weight. In short SSD’s are an integral part of every ultrabook and whenever an ultrabook is sold, an SSD is sold along.
Growth prospects of Solid State Drives
According to a research conducted by Market Intelligence and Consulting Institute, ultrabooks will account to 13% of the global shipments in the second half of the year. The shipments are expected to rise to 35% by 2016 and these numbers make the SSD industry all the more attractive.
The last 3-4 months have been bad for the SSD industry. All the major players are down significantly and the reason is the high cost of storage drives. Currently SSD’s cost $0.5/GB compared to $0.15/GB for HDD’s; more than triple the cost of conventional hard drives. The sales numbers and topline results might be disappointing, but the future prospects are not. The SSD industry is expected to grow at the rate of 51% compounded annually until 2015, which makes it pretty clear that this industry is the next thriving industry.
The competitors
OCZ technologies (NASDAQ: OCZ), the leading manufacturer and provider of high performance SSD’s is one company amongst many that is likely to benefit from the shift to ultrabooks. OCZ recently released that it will be bringing down the cost of SSD’s to $0.1/GB by the end of 2012, which could mean a drastic turn around for the company. According to an independent report, the shipments of SSD’s in 2012 are expected to be around 25.7 million units, up from 881,000 units in 2011, and will reach 121 million units by 2015. Competitors of OCZ Technologies include biggies like SanDisk (NASDAQ: SNDK), Western digital (NASDAQ: WDC), Seagate Technology (NASDAQ: STX) and Toshiba (NASDAQOTH: TOSBF).
SanDisk, one of the leading SSD manufacturers, happens to be in the industry for the past 25 years, and is growing steadily. Western Digital as we all know did not recognize the significance of SSD’s at the time when everyone was. This gave the opportunity to smaller players like OCZ to spring up and claim a decent market share. Western Digital shipped more than 71 million units of hard disk drives this quarter, SSD shipments were not even close to a million. This shows that the hard disk giant is struggling to create a market for itself in the SSD space. Toshiba, on the contrarian side, recently released that it will be cutting down the production of SSD’s by 30%. This will certainly give its competitors a nice piece of market share.
I was going through the products reviews recently and found that Seagate’s SSDs generally lagged other market products. Though Seagate is one of the major players in the hard disk space, and it also does manufacture SSDs, it would take the company some time to shift its forte from conventional hard drives to SSD’s.
Conclusion
It leaves no doubt that the SSD industry is the next thriving industry. The companies have not been able to profit from the production of SSD because Ultrabooks have just started to catch up in the market. Also the high cost of SSD has kept consumers at bay, but with cost/GB falling almost with every week, I don’t think there would be much to complain about in recent future. This industry is about to kick start and OCZ Technologies and SanDisk turn out to be my SSD favorites, when it comes to picking stocks of SSD manufacturers. But if I had to choose one stock, my choice would be OCZ technology as it is a fast growing company, that is quickly catching up on the giants. OCZ also has a lot of room to grow and diversify compared to SanDisk primarily because of its smaller size, thus a foolish buy rating.
