Hitachi Packs 'Em In

Hitachi (NYSE: HIT  ) is on the road to increasing the size of hard drives by a factor of 10. Of course, this won't come right away, but it's reassuring to know that Apple's (NYSE: AAPL  ) iPod mini may be able to contain a 20GB drive in a couple of years, vs. the 6GB limit the product has today.

The usefulness of the capacity increase is not limited to iPods, and it should affect many consumer electronic devices, like digital cameras, laptops, desktops, and possibly mobile phones. This is truly wonderful, but it's really just a continuation of what we've come to expect from hard drives: ever-increasing size for the same or less money.

Therein lies the problem for investors looking to find profits in the land of hard-drive manufacturers. The hard-drive industry is notoriously cutthroat. No sooner does Hitachi come out with a new technology than a Seagate (NYSE: STX  ) or a Western Digital (NYSE: WDC  ) comes along to match it at a lower price.

And so it's been since the dawn of time. Well, not exactly the dawn of time, but in Clayton Christensen's book The Innovator's Dilemma, the author details the jockeying back and forth in the industry starting from the 1970s and 8-inch drives. The dilemma for hard-drive manufacturers has consistently been to innovate and cannibalize your own sales, lest someone else come along and do it to you instead. It doesn't look like anything much has changed. A quick look at the industry over the past few years shows Seagate, Western Digital, and Maxtor (NYSE: MXO  ) all having their ups and downs.

Maybe this time will be different, but history shows us that improvements in hard-drive technology have been great for customers while not doing much of anything for investors. Tread very carefully, and in the meantime, enjoy those new gadgets, Fools!

Fool contributor Nathan Parmelee has no financial interest in any of the companies mentioned.