Hard drive prices will only normalize by 2014, says report

Although production of hard disk drives (HDDs) is rapidly recovering from the catastrophic Thailand floods that occurred in the October of last year, HDD average selling prices (ASP) are not expected to decline to pre-disaster levels until 2014, according to an IHS iSuppli Memory and Storage Market Brief report. The Thailand floods also shut down several hard drive manufacturing companies. Seagate and WD were both affected by the floods and prices of drives shot up further. Demand has continued to rise steadily, while supply has reduced and the extra stock depleted over the end of last year. In the wake of the floods, the ASP for the entire HDD market soared to $66 in the fourth quarter of 2011, up 28 percent from $51 in the third quarter. The ASP held steady at $66 in the first quarter, and is expected to decline marginally to $65 in the second quarter.

Prices continue to spin out of control

Meanwhile, after flooding caused a 29 percent plunge in shipments in the fourth quarter, HDD production is rising and will recover completely by the third quarter. Shipments rose by 18 percent to 145 million in the first quarter and by 10 percent to 159 million in the second quarter. Despite exceeding pre-flood shipment levels in the third quarter, pricing is expected to remain inflated. “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.”

Beyond the supply-side factors, 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 requirement for large quantities of HDD capacity continues to increase. Meanwhile, PC sales are also projected to climb in 2012. Growth will be driven by the rising adoption of Intel’s Ivy Bridge microprocessor, surging sales of Ultrabooks in the second half of the year and the proliferation of Microsoft’s new Windows 8 operating system.