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Hard drive prices to remain high through 2014

Inventories won't be back to normal until later this year

February 13, 2012 03:15 PM ET

Computerworld - While hard disk drive (HDD) supplies are starting to resurge, inventories will not be back to normal until the third quarter of this year and prices will remain unusually high through 2014, according to market research firms IHS iSuppli and Coughlin Associates.

As a result of flooding in Thailand last year, HDD prices will likely increase 20% to 30% over their average pre-flood prices and remain there through most of 2012, Coughlin Associates said in its report today (download PDF).

Additionally, the hard drive manufacturing industry will have to spend about $1 billion to replace and repair manufacturing plants damaged by the monsoonal flooding.

HDD supplies in the fourth quarter of 2011 fell by 26% compared to the same period in 2010, according to IHS iSuppli. Shipments are set to decline by another 13% in the first quarter of 2012 and by 5% in the second quarter on an annual basis.

The average global selling price for HDDs soared by 28% in the fourth quarter of 2011, according to IHS iSuppli. While prices will decline by 3% in the first quarter and by 9% in the second quarter, they will remain inflated for the whole year.

"Prices will remain high for a number of reasons, including the higher costs associated with the relocation of production, as well as higher component costs because of flooding impacts among component makers," said Fang Zhang, a storage analyst for IHS iSuppli.

PC prices will also be affected because system makers have signed annual contacts with HDD makers that have locked them into elevated pricing deals for the rest of the year, Zhang noted.

Additionally, industry HDD consolidation could hold prices higher than pre-flood levels for a few more quarters because there are fewer competitors in the market, IHS iSuppli said. It was referring to mergers between Seagate and Samsung and between Western Digital and Hitachi GST.

In a report released Friday, iSuppli predicted the Thailand flooding will continue to have an impact on inventory and prices until shipments rise first by 2% in the third quarter, followed by a 42% surge in the fourth quarter of 2012.

"The recovery of global HDD manufacturing has begun and will continue during each quarter of 2012," Zhang said. "HDD prices will remain inflated and inventories will continue to be depleted, showing that demand is exceeding supply. Supply and demand should return to balance by the end of the third quarter."

Coughlin Associates said the combination of industry consolidation and Thailand-related shortages, will result in higher HDD prices at least until 2014. The higher prices, however, will help fund expensive new technology transitions by 2015 or 2016 and increase areal density growth rates by 40%.



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