Hard drive shipments in the first quarter of 2011 are expected to see a sequential drop of 4-5% to only about 155-165 million units as notebook vendors face inventory pressure generated by weak sales over the year-end holidays in Europe and the US, and the Lunar New Year holidays in China; however shipment volumes may see a double-digit growth sequentially in the second quarter, according to sources from hard drive makers.

As hard drive makers have recently started negotiating for new orders for the second quarter, the sources believe that their shipments in May and June will see significant growth and if brand vendors have smooth shipments of new notebook models plus strong market demand, the makers will then have a chance to see the expected double-digit growth.

Because demand from channels will only have limited growth in the first quarter, prices of mid-range and entry-level hard drives are currently still facing strong pressure of price declines, and as raw material prices continue to rise, hard drive makers are expected to see dropping gross margins for the first quarter.

Therefore, hard drive makers such as Western Digital and Seagate are currently placing their hopes on their shipments in the second half, when the PC and enterprise markets will see strong demand, to bring back their gross margins.

Currently, hard drive shipments are still mainly for use in notebooks, accounting for over 70% of the volume, while 20% are external hard drives, and the remaining percentage are shipments to the enterprise market.