It has been nine months since Thailand was hit with its worst flooding in a century that took the lives of 800 people. In the process, Thailand's hard drive industry also took a whack, with production all but ground to a halt as expensive machinery was left partly under water.
At the time, analysts predicted that prices would not return to normal until the second quarter of 2012. Seagate said at the time that recovery would take most of 2012, and Western Digital predicted its capacity would not return to normal until the end of Q3. Now that we are halfway through 2012, how do those predictions look? Well, right on the market, which is bad for consumers.
IHS, formerly iSuppli, follows the tech supply chain and found that nine months after the disaster, the average selling price of a hard disk is $66, a 28 percent increase over the ASP of $51.5 right before the floods. That 28 percent increase has held steady since the floods and is not going down, said Fang Zhang, storage analyst for IHS.
Needless to say, the few remaining hard drive makers aren't exactly broken up over this. If anything, they are more profitable than ever. Western Digital went from a quarterly profit of $146 million in Q1 2011 to $483 million in Q1 2012, although that is partly influenced by its acquisition of the Hitachi hard disk business.
For Seagate, the change is even more pronounced. It went from $2.7 billion in sales and $93 million in net income in Q1 2011 to $4.4 billion in sales and $1.1 billion in net income for the first calendar quarter of 2012. Would you give up profits like that?
The industry has undergone quite a bit of consolidation and there are only three HDD makers left; WD, Seagate and Toshiba, Fang notes. Toshiba bought Fujitsu's business a few years back, Seagate bought Samsung's business, WD bought Hitachi's business, and Seagate bought Maxtor several years ago.
"What is supporting [the higher prices] is the consolidation. There's only three hard drive manufacturers, and the component makers all consolidated because no one was making much money before. So now you have only one or two vendors for each component. So at this point, there is no need to drop price because there is no competition, so why bother?" said Zhang.
The second thing holding up HDD prices is that OEMs signed long-term agreements (LTAs) at the start of the year, and those agreements run for the full year. So even as supply slowly returns to pre-flooding levels -- and it has not -- prices are locked in for the year.
Zhang said in Q2 of 2011, the total number of hard drives shipped was 167 million. This year, that number was down to 150 million. With OEM contracts in hand, WD, Seagate and Toshiba are going to serve Apple, Dell and HP first. The big loser is the retail channel. If you want to go to your local computer store to buy a hard drive, don't be surprised if the pickings are mighty slim and the prices are still high.
"The individual buyer gets screwed the most. Wherever [HDD makers] have a bigger volume and long-term agreement, they get supply first. No one wants to drop their margin voluntarily when there is no threat from anyone," said Zhang.
The result? Prices aren't likely to drop at all this year, and might not even return to pre-flooding levels until the end of next year, or at least late in the year, she added.
more than 100 focused websites providing quick access to a deep store of
news, advice and analysis about the technologies, products and processes crucial
to the jobs of IT pros.
All Rights Reserved, Copyright 2000 - 2013, TechTarget | Read our Privacy Statement