Hard drive prices to remain high until 2014

The average drive price will remain at $65 this quarter, says IHS iSuppli

Hard drive prices will remain high after massive monsoonal flooding last year knocked out manufacturing plants, and prices will not fall to pre-flood levels until 2014, a report released Wednesday stated.

In the wake of the flooding in Thailand last year, hard drive prices rose to an average of $66 in the fourth quarter of 2011, a 28% leap from the $51 average price in the previous quarter, according to IHS iSuppli.

The average price held steady at $66 in the first quarter of 2012 and is expected to decline only marginally, to about $65, in the second quarter, IHS iSuppli stated.

An "oligarchy" of two drive manufacturers created by industry mergers is one reason why prices continue to remain steady, according to the market research firm.

Additionally, PC makers in the second quarter signed long-term agreements with hard-drive makers, locking in prices that were about 20% higher than pre-flood levels, IHS iSuppli stated.

Demand-related issues also will contribute to inflated HDD pricing throughout 2012 and 2013. From local drives for media content, to cloud storage of social media and corporate data, the demand for large quantities of HDD capacity continues to increase.

Meanwhile, PC sales are projected to climb in 2012. Growth will be driven by the rising adoption of Intel Corp.'s Ivy Bridge microprocessor, the surging sales of ultrabooks in the second half of the year and the proliferation of Microsoft Corp.'s new Windows 8 operating system, iSuppli said.

"Even if all the [PC manufacturers] stop entering into [long-term agreements] by the end of 2012, it would take about four quarters with a 6% sequential decline in the [hard drive average sales price] to reach the pre-flood pricing level," the report stated. The likelihood of that is remote, it added.

The Thailand flooding that took place last fall caused a 29% plunge in shipments in the fourth quarter of 2012, IHS iSuppli has said. Production is rising and will recover completely by the third quarter of this year.

Other market research firms, such as ecommerce tracking site Dynamite Data, have stated much higher leaps in drive prices due to the flooding. Dynamite pegged the top 50 hard drives on sites such as Newegg.com and Tigerdirect.com as having jumped in price by 50% to 150% after the flooding. Kristopher Kubicki, a data architect at Dynamite Data, also stated that drive inventory levels last October plummeted 90% in less than a week.

iSuppli said drive shipments have risen by 18% to 145 million in the first quarter and by 10% to 159 million in the second quarter.

Shipments are expected to bump up an additional 10% to 176 million in the third quarter, according to IHS iSuppli.

Fang Zhang, an analyst with iSuppli, said the third quarter marks the first time in 2012 that shipments will exceed their 2011 quarterly levels, up from 173 million in the third quarter of 2011.

"HDD manufacturers now have greater pricing power than they did in 2011, allowing them to keep [average selling prices] steady," Zhang said.

With Seagate's buyout of Samsung's disk drive unit and Western Digital's purchase of drive maker Hitachi GST, the two top drive suppliers held 85% of the market share in the first quarter 2012, Zhang said. That's up from 62% over 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 [average sales prices] at a relatively high level," he said.

Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed . His e-mail address is lmearian@computerworld.com.

See more by Lucas Mearian on Computerworld.com.

Copyright © 2012 IDG Communications, Inc.

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