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prices will remain high until 2014 thanks to long-term agreements between computer makers and hard drive makers

The massive flooding in Thailand last year significantly affected the ability of several manufacturers to produce hard drives used for data storage in computers and other devices. The flooding meant that much of the production capacity was unavailable and led to shortages and increased prices for available hard drives.
 
According to iSuppli, the price of hard drives isn't expected to return to pre-flood levels until at least 2014. That means for more than a year, prices will be inflated due to shortages caused by the flooding. ISuppli reports that the average selling price for the entire hard drive market grew to $66 in Q4 2011, which is up 28% from $51 in the third quarter. The average selling price held steady at $66 in Q1 of 2012 and is expected to slide to $65 in Q2.
 
The flooding in Thailand led to a 29% reduction in the number of hard drives shipped in Q4 2012. That significant reduction in shipments is expected to end and production will be completely recovered by Q3 of 2012. The company reports that hard drive shipments increased by 18% to 145 million units in Q1 2012 and in Q2 increase by 10% to 159 million units.
 
ISuppli is predicting that shipments will increase again in Q3 2012 by another 10% to 176 million units. Q3 is expected to be the first quarter where shipments or exceed 2011 numbers. Despite the return to normal shipment levels, pricing is expected to remain flat with no decline.
 
“HDD manufacturers now have greater pricing power than they did in 2011, allowing them to keep ASPs steady,” said Fang Zhang, analyst for storage systems at IHS. “With the two mega-mergers between Seagate/Samsung and Western Digital/Hitachi GST, the two top suppliers held 85 percent of HDD market share in the first quarter 2012. This was up from 62 percent in the third quarter of 2011, before the mergers. The concentration of market share has resulted in an oligarchy where the top players can control pricing and are able to keep ASPs at a relatively high level.”

One reason pricing won't decline is that a number of original equipment manufacturers in the computer industry signed a long-term agreements with hard drive makers to guarantee drive shipments but locking in prices about 20% higher than were paid before the flooding.

Source: iSuppli



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RE: Good times
By retrospooty on 6/11/2012 10:41:21 AM , Rating: 2
"I imagine the HDD manufacturers are looking at this as a lesson learned."

I think its more a case of taking advantage of the situation. In the end it will come down to supply and demand. If they wind up with excess inventory (and at some point they will) prices will drop and drop fast. I highly doubt this will last until 2014.


RE: Good times
By Solandri on 6/11/2012 12:43:59 PM , Rating: 2
quote:
I think its more a case of taking advantage of the situation. In the end it will come down to supply and demand. If they wind up with excess inventory (and at some point they will) prices will drop and drop fast. I highly doubt this will last until 2014.

They're not taking advantage of the situation. The current situation is normal. The situation before the flooding was abnormal, with margins for HDD margins being razor-thin. A combination of too many manufacturers and rapid improvements in technology for the last decade meant they had to cut prices sharply on old stock to clear them out of the warehouses before they went obsolete. Good for the consumer, but simply not sustainable.

Now we've gone from about a half dozen manufacturers to just 3 (one of which only makes 2.5" drives), and the rate of improvement is slowing down (if you extrapolate old HDD improvement rates, we'd be seeing 10 TB drives about now). The industry has turned a corner, from a cutthroat growth industry with razor-thin margins, to a mature more steady one with margins more like other industries.

My only worry now is that we have too few players - their mergers were all started before the flooding. The merging was the market's response to try to correct the razor-thin margins. But the flooding took care of that for them, which means now there really isn't a need to have so few manufacturers. The lack of competition means it's going to take a while for HDD prices to fall. Before the flooding when HDD prices were too low, that was a good thing. After the flooding now that HDD prices are too high, that's a bad thing.


RE: Good times
By Boze on 6/11/2012 1:03:26 PM , Rating: 2
Solandri, thanks for the excellent post.

I don't know if retrospooty remembers what hard disk prices were like say, 8 years ago, but the situation just 2 years ago was exactly as you describe it.

As far as slowing down of progress, I'm not even sure if its really necessary.

If I were to eliminate my archived Blu-ray movies and TV shows, I'd free up 8 terabytes of space instantly. I could pop those discs into my Blu-ray player attached to my home theater or into my Blu-ray drive and accomplish the same thing, its just more convenient for me to have those files on the disk.

I'm sure there plenty industries though where 10 TB drives would be desirable. Biologists in particular seem to need a lot of storage space for data.


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