The predictions come as drive makers are gaining Wall Street's attention for relatively strong financial performance this year, but generally face a slowdown in new product introductions. Also slowing is the rate of growth in how much data can be stored on a square inch of media.

Since 1998, the number of drive makers has shrunk from 12 to seven while the number of independent head makers dropped from eight to two. Media makers consolidated from 11 to five, according to an analysis from Seagate Technology Corp. Western Digital recently bid to acquire head maker Read-Rite in the latest move toward greater vertical integration.

"With the moves we have made you will see much more focus on other players striking strategic relationships," said Matt Massengill, chief executive of Western Digital.

Seagate President Bill Watkins said drive makers are moving toward integrated processes and close relationships with component makers and away from the days of discrete processes where drive makers pitted their suppliers against each other in intense cost competitions.

"We are in a time when how people deal with each other is changing. We're going to be in supply chain wars," Watkins said. Seagate makes all of its own heads and about 90 percent of its media, he added.

As the industry matures, profit margins have stabilized above 20 percent and drive makers have outperformed high-tech stocks generally for the last three years, said Bill Lewis, senior analyst with J.P. Morgan Chase & Co. "Wall Street has taken notice of the hard drive industry in 2003," Lewis said.

Nevertheless the outlook is still unclear. "This industry is driving up a mountain in a thick fog. We don't know if we are at a peak or have a lot further up the mountain to go," Lewis added.

Notebooks are the brightest sport for today, driving growth in 2.5-inch drives which vendors expect to appear in servers next year and ultimately see use in desktops and emerging consumer gear as well.

"You'll see [many] more 2.5-inch drives in virtually all segments," said Dirk Thomas, vice president of strategy for Hitachi GST, the combination of Hitachi and IBM drive divisions which has an estimated 60-percent share of the notebook market where 2.5-inch drives currently domonate.

Watkins of Seagate, which entered the notebook market this year, said he expects 2.5-inch drives to gain design wins in servers in 2004 as well as a few experimental small form factor desktops. Smaller 1.8- and one-inch drives are also on the rise he added.

"When you get 5 Gbytes in a one-inch form factor then you will have some very interesting mobile applications," Watkins said. GS Magicstor Inc. (Guizhou, China) will be very near that in November when it ships a 4.8 Gbyte version of its current one-inch drive, said a company representative here. The company is also developing a 40 Gbyte 1.8-inch drive it will launch in April.

Ichiro Komura, group vice president of Fujitsu's drive business said his company will enter the market for the small drives soon. He estimated the market for 1.8-inch drives will be $1.5 billion in 2006. Apple now uses 1.8-inch Toshiba drives in its popular iPod MP3 players.

"Maxtor and Western Digital plan to enter the 2.5-inch drive business, but the market can't support six suppliers so we will see more opportunity for consolidation," said Lewis of J.P. Morgan.

Lewis and other analysts also called for drive makers to lengthen product cycles, growing profits by shipping more units per platform. That trend could be driven by an expected slowdown in the rate of increase of areal density, the amount of data stored on a square inch of media.

Areal density has been growing at a rate of nearly 100 percent a year, but is expected to slow to as little as 50 percent a year, Lewis and others said.

Industry veteran Michael Workman agreed drive makers are slowing growth in areal density growth as OEMs say drives have met capacity requirements for major markets like desktops. "There's not a lot of people who need 160 Gbytes at the desktop," said Workman, who claimed most cost reductions have now been wrung out of both drives and PCs.

Enterprise storage systems, made by the likes of EMC Corp. and Network Appliance, are the next big target for commoditization, said Workman. His 240-person startup, Pillar Data Systems (San Jose), hopes to drive lower prices in that sector by fielding large arrays now in a test stage based on serial ATA drives and x86 controllers.

Some startups in storage networking have already gone belly up, Workman said. "I absolutely agree the enterprise storage systems are will be commoditized over the next three years," said Massengill of Western Digital.

Consumer gear such as game consoles and personal video recorders represent a significant emerging market, buying about 10 percent of all drives today and growing at an estimated 50 percent a year. However, "the consumer market won't save hard drives. TVs are just as cost sensitive as PCs," said Workman.