In the past few days, the price of big-name hard drives – Seagate, Western Digital, Hitachi, Samsung has shot up 40 to 90 percent.
Whether the profiteering can be attributed to manufacturers, distributors, or retailers is unclear — the middlemen don’t post their prices — but consumers, businesses, and IT companies are getting gouged.
Why is this happening? It all started with the flooding in central Thailand. Western Digital’s main plant in Bang-Pa industrial park was inundated with almost two meters of water (you can see pictures on Scan Computers International’s Facebook page). Toshiba had a hard drive plant in the same industrial park. Nidec and Hutchinson Technologies both had plants that make hard drive parts, taken out in the same flood. Nidec has an alternate plant outside the flood zone. Hutchinson has said it will shift production to the United States and fill orders from existing inventory.
The brunt of the flood has since flowed south. Bangkok saw horrendous flooding over the weekend, with more than 2.4 million people affected. But deep water remains in central Thailand, and it will take weeks just to get the water out. Repairing the facilities and replacing the equipment will take months.
The flooding took out approximately 25 percent of the world’s hard drive manufacturing capacity — but that isn’t the whole story.
Western Digital has a second large plant in Malaysia. Seagate doesn’t have any manufacturing in the flooded areas. Toshiba makes hard drives in several locations, not just Bang-Pa. All of the major manufacturers rely on parts supplied by companies that were hit by the floods, but there are alternate suppliers in different locations.
After the flood hit, hard drive prices remained static. But then the flooding story expanded, first in the technical press, then to the mainstream press. Two weeks ago, Apple CEO Tim Cook talked about the Thailand floods and called an industry wide hard drive shortage “likely.” Western Digitalannounced that they believe the industry will be supply constrained due to the flooding in Thailand” and projected a net operating loss for the fourth quarter of the year. Then the financial analysts started predicting shortages. When Wall Street starts moaning – we all suffer.
What’s the reality? Hardware manufacturers typically keep four to eight weeks’ inventory on premises or in the immediate supply chain, but with an expected softening in fourth-quarter PC sales, some of them had let their stocks slip. They’re now in the process of locking in hard drive shipments for late this year and early next year.
Where are prices headed? In the short term, almost certainly up. That isn’t because of supply: With Western Digital shifted to Malaysian production and Seagate plants running full tilt, the number of hard drives being produced right now is likely very close to the number that came off the assembly line before the flood.
When it comes to manufacturing hard drives, the sky isn’t falling. Not even close. There’s no doubt that the price increase is in response to demand and how long the irrational demand will last is anybody’s guess.
Let’s see how PC prices and sales fare over the next few months. If PC builders end up with an overstock of hard drives due to today’s irrational buying, perhaps PC prices will actually go down.
