The floods in Thailand have already had an impact on the supply of hard disk drives (HDD). Distributors were slow to react as resellers took immediate advantage of HDD shortages, with sell-through up 109 per cent in that week. Vendor Western Digital said supply constraints on internal HDD sales are very likely.
Our figures revealed that in the week of 17 October (Week 41), Tier 1 and Tier 2 vendors both benefited from sequential sales increases in unit terms, with Seagate sales to resellers up 175 per cent, Western Digital up 118 per cent and Buffalo 200 per cent.
So far, prices seem unaffected. In fact, they were down in Week 41 as numerous deals took place. Distributors were too slow in raising prices as a reaction to the shortage.
We also expect prices to rise massively over the coming weeks as fulfilment capabilities drop to 50 to 60 per cent of the total addressable market. Already, the past two months have seen the price of Western Digital’s 2TB Green Caviar SATA II drive rise by more than 180 per cent. At the time of writing, Amazon was selling these for £160, up from less than £57 towards the beginning of September.
Western Digital’s quarterly earnings call confirmed the impact, with the recent flooding halting output in two of its factories in Thailand. In addition, some HDDs that were ready to ship were stored on the ground floor, rather than moved to higher levels.
We believe Western Digital will not resume production in the country for another six months, after which it will take about six weeks to ship the products to Europe. However, if the firm were to supply the products by train, it would take only four weeks.
The problem is that the costs associated with this will be passed on to resellers - given the already low margins on HDD.
Western Digital’s main competitor, Seagate, has also warned of reduced production due to disruption in its supply chain. However, Seagate’s main concern has been getting a steady supply of components.
Given that a large proportion of Seagate’s products are manufactured in China, Malaysia and Singapore as well as Thailand, we believe Seagate is likely to take advantage of these trying times, poaching customers from Western Digital.
At the time of writing, figures for the third quarter of 2011 assign Western Digital and Seagate 38.9 per cent and 30.6 per cent market share of the bare drive industry respectively.
PC vendors also have cause for concern. We expect all vendors to be affected, with Dell the hardest hit. Dell’s “just-in-time” modus operandi means it tends to hold low levels of stock, in response to the fast depreciation of computers. While this has been an enormously successful strategy in the past, the impending shortages will have an adverse effect. Context is predicting consumer, rather than commercial, product lines will most likely be affected.
Apple may also be hit. The vendor’s chief executive, Tim Cook, has raised concerns that Mac lines could be affected.
The bigger picture
Broader industry dynamics surrounding this shortage indicate that it may be an opportune moment for SSD manufacturers. We expect them to capitalise on this situation, driving down prices to increase market share.
Unit sales of SSDs in the third quarter of 2011 were up 96 per cent on the same period last year, and the ASP fell from €187 (£160) to €172. We anticipate a further decline in SSD price.
Meanwhile, cloud-based storage solutions may also rise in popularity in the short term, due to the availability of Apple’s iCloud and other alternatives.
The next few months will prove to be crucial for the HDD industry, which has already been severely affected by the devastation in Thailand. We expect HDD unit sales to decline significantly over the next six months. We predict that vendors will be unable to meet demand and prices will rise, further affecting sales.
Context expects an increase in SSD unit sales, cloud storage space purchases, and consequently an overall long-term decline of the HDD market.
Alexandre Mesguich is vice president of enterprise research and head of corporate benchmarking services at Context
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