Perpendicular Magnetic Recording and Other New Technologies Drive Capital Spending

Thomas Coughlin Coughlin Associates www.tomcoughlin.com

• Perpendicular magnetic recording will completely displace longitudinal recording in HDDs by 2009. Along with unit volume increases to meet demand for new and established applications manufacturing of PMR and other new technologies to meet areal density growth needs over the next few years will fuel industry capital spending that will exceed $20 B between 2005 and 2010. This presentation will describe the impact of the PMR conversion in terms of drive and component shipments and capital equipment spending. It will also discuss component and drive technology developments and the capital equipment that will be required to make them manufacturable.

• Industry Market Trends • Technology Projections • Capital Spending Trends • Conclusions

1,000,000 (Annual Units) High Estimate 900,000 Median Estimate Low Estimate 800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

160

140

120

100

HDD ASP ($) . HDD 60

0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 Copyright 2006 Coughlin Associates HDD Market Niche Projections

800,000 Mobile 700,000 CE Desktop 600,000 Enterprise ATA Enterprise 500,000

400,000

300,000

200,000 Units in thousands . thousands in Units

100,000

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

By 2010 CE and Mobile Computers will dominate in disk drive unit volume

800,000 1.3 inch or less 1.8 inch 700,000 2.5 inch 3.5 inch 600,000

500,000

400,000

300,000

200,000 Units (in thousands) .

100,000

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

By 2010 2.5-inch and smaller HDD will provide over half of total disk drive volume

2004 2005 2006 2007 2008 2009 2010

3.5 INCH 577,808 594,090 596,054 589,908 622,093 669,333 689,747

2.5 INCH 176,858 278,720 370,093 445,009 527,427 633,654 716,529

1.8> INCH 27,886 65,360 58,937 99,530 144,034 203,031 285,381

TOTALS 782,552 938,170 1,025,084 1,134,447 1,293,553 1,506,018 1,691,658

2004 2005 2006 2007 2008 2009 2010

3.5 INCH 361,384 373,773 397,369 418,835 438,576 468,533 482,823

2.5 INCH 114,102 174,200 231,308 279,925 334,037 390,753 444,742

1.8> INCH 17,708 34,627 32,808 58,606 84,810 119,550 168,039

TOTALS 493,194 582,600 661,485 757,365 857,423 978,836 1,095,604

$9.00 MR Head GMR Head $8.00 TMR Head PMR Head $7.00

$6.00

$5.00

$4.00 2004 2005 2006 2007 2008 2009 2010 MR Head $5.50 GMR Head $5.50 $5.25 $5.00 $4.75 TMR Head $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.75 PMR Head $8.50 $8.00 $7.00 $6.00 $5.50 $5.00

$7.00

$6.00

$5.00

$4.00 2004 2005 2006 2007 2008 2009 2010 2.5' Glass Long. $6.75 $6.50 $6.30 $6.15 $5.95 $5.80 $5.60 2.5' Glass Perp. $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 $6.50 3.5' Aluminum $5.50 $5.40 $5.40 $5.30 $5.20 $5.10 $5.00 Long. 3.5' Aluminum Perp. $8.50 $8.00 $7.50 $7.00 $6.50 $6.00

Copyright 2006 Coughlin Associates Observations regarding Technology Introductions • Technology introductions occur erratically in a monotonically increasing fashion, driven by the pace of technical discovery as well as introductions timed for maximum advantage to the introducing company • Once a technology is introduced it must go through a learning cycle until yield and performance issues are resolved and then follows a rapid adoption that displaces other technologies • There may be more than one approach that creates at least a short term solution to a given technological problem

450.00 HDD Technology 400.00 HDD Product 350.00 300.00 About 2-2.5 year lag between laboratory and product 250.00 announcement 200.00 150.00 100.00 Areal Density (Gbpsi) 50.00 0.00 1 3 5 00 00 00 20002000200020012001 200220022003 200420052005 2 3 4 1 2 3 2 3 4 1 2 2 3 2003 4 1 2 3 2 4 2005 Q1 2000Q Q Q Q Q Q Q4 2001Q1 2002Q2 2002Q Q Q Q Q Q4 2003Q1 2004Q2 2004Q3 2004Q Q Q Q Q Q1 2006Q2 2006Q3 2006 Quarter Copyright 2006 Coughlin Associates Comparison of Product Announcement Trends vs. Areal Density Rates 1000 HDD Produc t There is no single 20% CAGR CAGR. Growth 40% CAGR rate of technology 60% CAGR 80% CAGR introductions 100 % CAGR varies with time

100 Gbits per square inch

10 0 0 0 0 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 0 0 0 0 0 0 00 00 001 001 00 00 00 00 00 00 00 00 00 00 00 00 20 2 2 2 2 20 2 2 2 2 20 2 2 2 2 20 20 2 2 2 2 20 1 3 4 1 2 3 2 3 4 1 4 1 2 3 4 2 3 4 1 2 Q Q2 200Q Q Q Q Q Q4 2001Q1 Q Q Q Q Q2 200Q3 Q Q Q Q Q Q1 200Q Q Q Q Q Q3 200 Copyright 2006 Coughlin Associates Comparison of Announcements to Highest Shipping Areal Density (2001-2005)

160.00 HDD Product 140.00

120.00 Highest Shipping AD (Gartner) 100.00

80.00

60.00

40.00

20.00

0.00 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 0 0 0 0 2001 200 200 200 200 200 200 200 1 2001 4 2001 2 200 1 200 4 200 2 200 1 200 3 200 Q Q2 20Q3 Q Q1 Q Q3 20Q4 Q Q2 Q3 Q Q1 Q Q3 20Q4 Q Q2 Q Q4 20

Copyright 2006 Coughlin Associates CAAGR Acronyms • However one facet of magnetic recording that appears to show steady growth is the growth of acronyms. • Cumulative Annual Acronym Growth Rate (CAAGR) increases as short- hand for greater technology complexity Time Copyright 2006 Coughlin Associates Transition from LMR to PMR

Longitudinal Recording

Perpendicular Recording

Longitudinal Gen. 1 Gen. 2 Gen. 3 Gen. 4 Recording (LMR) PMR PMR PMR PMR

1,000.00

50% Annual CAGR assumed after 2006

100.00 Areal Density in Gbpsi . Gbpsi Areal Density in

10.00 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010

• Generation 1: Initial product introductions by Toshiba and then Seagate • Generation 2: Current product generation— incremental improvements in PMR, greater use of TMR readers • Generation 3: Further improvements including discrete track and/or dual-stage actuator • Generation 4: TAR/HAMR or Patterned Media with more advanced read sensors, dual-stage actuators

PMR Magnetic Medium

Perpendicular Head Write Pole Formation

• Generation 3 Technology Candidates: – New PMR Media • exchange coupled composite media (ECC) • Exchange Spring Media (ESM) • Discrete track recording could also be used to increase TPI – Head Technologies • Adjustable spacing heads • Secondary actuator heads (cost model must improve) • At least TMR, maybe CPP GMR? • Generation 4 Technology Candidates: – By generation 4 some companies may be incorporating initial elements of TAR/HAMR or some form of patterned media – Use of secondary actuators may be used to increase TPI if cost can be reduced – Improved read sensors such as CPP GMR or even more sensitive technologies – Improved encoding to recover signals with lower SNR

Year 2005 2006 2007 2008 2009 2010

Total 0.5% 7.0% 26.7% 62.0% 86.8% 100.0%

1,000 Perpendicular 800 Longitudinal 600

400

200

0 2005 2006 2007 2008 2009 2010 Perpendicular 2 31 137 365 594 782 Longitudinal 378 414 375 224 90 0

2,000 Perp. Heads 1,500 Long. Heads

1,000

500

0 2005 2006 2007 2008 2009 2010 Perp. Heads 6 77 314 834 1,552 1,742 Long. Heads 933 980 856 499 203 0

1,200 Perp. Disks 1,000 Long. Disks 800 600 400 200 0 2005 2006 2007 2008 2009 2010 Perp. Disks 4 49 205 545 1,008 1,128 Long. Disks 579 633 576 338 136 0

Total Process 73%

Drive 25% Media 36%

Head 39%

Total Capital Equipment Spending ~$2.2 B

Fujitsu Toshiba Maxtor 6% 4% 10% Seagate 43%

WD 14%

HGST 23%

Copyright 2006 Coughlin Associates Drivers for Capital Equipment Spending to 2010 • Annual drive volumes increasing ~2X by 2010 from 2005 • Form factors ratio changes: 2.5-inch and smaller HDDs to dominate by 2010 • New HDD applications may require new manufacturing capital equipment and process changes • Transition to perpendicular recording making much older equipment obsolete • Lower flying heights and smaller bits increasing metrology requirements, contamination control, as well as tightening of head and disk specifications • By 2009 and 2010 to continue areal density increases the industry must introduce new technologies such as HAMR, discrete track media or fully patterned media

Year Total HDD Total HDD Percentage Capital Company Est. Industry Capital Equipment Revenue Est. Equipment Spending/ Spending Revenue 2005 $28.1 B $2.23 B 7.9% 2006 $32.4 B $2.87 B 8.9% 2007 $36.6 B $3.62 B 9.9% 2008 $41.5 B $4.29 B 10.3% 2009 $47.7 B $4.96 B 10.4% 2010 $53.6 B $5.68 B 10.6% Total (2006- $239.9 B $23.65 B 10.1% (avg.) 2010)

Capital/Drive 5.00 300 4.50 200 Total Drive Number (M) (M) Number Drive Total 4.00 100 3.50 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

3000 . . 2500

2000 Sales ($M) 1500

1000

500

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

5,000

4,000 Capital Equipment Spending 3,000 ($M) 2,000

1,000

0 2005 2006 2007 2008 2009 2010 Drive 560 803 1,017 1,202 1,389 1,591 Head 875 1,093 1,385 1,636 1,891 2,166 Media 791 973 1,233 1,457 1,684 1,929

• Projecting 445 M HDDs in 2006 • We project strong growth in HDDs through 2010 and a significant increase in the percentage of HDDs that are used for CE and mobile computer applications as well as smaller form factors • Areal density product growth is an irregular process • Areal density growth using perpendicular recording will drive four generations of products by 2010. • All HDDs expected to use PMR by the end of 2009 • Technology transitions will drive about $23 B capital spending by the industry by 2010

• 2006 Hard Disk Drive Capital Equipment Market and Technology Report, Coughlin Associates

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