The Impact of Thailand and Hard-Drive Shortages
Everyone in our industry seems to be keeping at least one eye on the impact of the massive flooding in Thailand and the hard-drive shortages resulting from it. If you haven't been, here is a quick summary:
- Thailand is experiencing record flooding - the worst in 50 years.
- Manufacturers are struggling to continue work in the face of suspended plants and suppliers.
- Western Digital and Toshiba have shut down their hard-drive production facilities in Pathum Thani province, near Bangkok.
- Nidec, a leading supplier of components (including roughly 70-80% of hard-drive motors used by major manufacturers) has been substantially and adversely affected.
- Thailand is a top producer of hard-drives (second only to China) - these events are driving up absolute prices for hard-drives, anywhere from a 50-200% increase (varying depending on the brand and where you are in the chain of purchasing the equipment.)
While in general storage becomes cheaper and faster over time, this year has seen some serious backsliding in that area. Earlier in the year, the earthquake in Japan produced a similar effect, with some companies seeing a 10-15% increase in price. Looking back now, that is only a fraction of the spike we are witnessing due to the situation in Southeast Asia.
The Impact on Prices
With an estimated concentration of over half of Western Digital's hard drive production base in Thailand, along with about half of Toshiba's, it is understandable why we are seeing such significant increases in price.
We have heard estimates as high as an expected 25-30% reduction in hard-drive production that will extend through the rest of the year and possibly through the first quarter of next. This degree of shortage will likely spur companies to buy up as many hard-drives as they can to maintain their own supply of products, further pushing prices up.
WD and Toshiba have other facilities in Southeast Asia which they can leverage, but this cannot possibly compensate for the difference because:
- Not all facilities are built the same
- A complete shift of production and supply chain will be very difficult to achieve
- Even if all supplies and components are successfully shifted to new locations, it is unlikely that the supply chain will yield the same level of production (efficiency of this kind often takes time to develop)
- They would be starting from a position of a loss due to the time spent not producing
The Impact on the Industry
Some speculate that this could somewhat shift the landscape of the hard-drive business. Of the two top manufacturers, Western Digital and Seagate, the latter has been relatively less affected because its facilities have avoided the brunt of the damage from the flood. But while their Thailand factories may be dry and operational, they are and will continue to suffer from the extensive supply chain problems from shut-down suppliers. Although an increase in hard-drive prices for Seagate lagged behind WD, we are starting to see their products rise now as well.
However, there may also be some potential opportunities for companies willing to take advantage of them. Is there anyone who couldgain from hard drive storage?
All of this turmoil leads to an interesting question though: who stands to benefit from this mess? Analyst firm Sterne Agee came out after the WD report and said OCZ is going to see a bump in sales due to the lack of HDD supply. Taken with a grain of salt, Sterne Agee covers OCZ and has a buy rating on the stock, their point may still be valid. Is there a possibility that the HDD supply problems could cause buyers to go to SSDs as an alternative?
It's not exactly an apples to apples storage decision. Someone looking for a 1TB notebook drive for $120 isn't going to all of a sudden opt for a $1000+ SSD of equal capacity. The enterprise at large isn't going to cancel their orders of hard drives for mass storage and jam SSDs in their servers. That said, as hard drive prices go up and supply is harder to find, anyone who's been on the fence about testing SSDs in the enterprise or thinking about buying a new laptop with an SSD, might find this problem to be the nudge they need to go solid state.
The Impact on You
How is the situation in Thailand affecting your business? What steps are you taking to deal with it?
The increase in hard-drive costs may push up prices for other low-margin products and components, in turn raising the final prices for manufacturers, distributors, retailers, and eventually consumers. That said, there is room for innovation here. Manufacturers could find other areas to offset the inefficiency of the supply chain; marketers may find creative ways to design attractive packages to boost sales; and consumers... will always find a way to get what they want.
In the end, hard-drive prices will inevitably go down. But in the meantime we must all cope with the reality of increasing prices.
How Will You Respond to the Hard-Drive Shortage in the Short- and Medium-Term?
The Impact of Thailand and Hard-Drive Shortages
Everyone in our industry seems to be keeping at least one eye on the impact of the massive flooding in Thailand and the hard-drive shortages resulting from it. If you haven't been, here is a quick summary:
- Thailand is experiencing record flooding - the worst in 50 years.
- Manufacturers are struggling to continue work in the face of suspended plants and suppliers.
- Western Digital and Toshiba have shut down their hard-drive production facilities in Pathum Thani province, near Bangkok.
- Nidec, a leading supplier of components (including roughly 70-80% of hard-drive motors used by major manufacturers) has been substantially and adversely affected.
- Thailand is a top producer of hard-drives (second only to China) - these events are driving up absolute prices for hard-drives, anywhere from a 50-200% increase (varying depending on the brand and where you are in the chain of purchasing the equipment.)
While in general storage becomes cheaper and faster over time, this year has seen some serious backsliding in that area. Earlier in the year, the earthquake in Japan produced a similar effect, with some companies seeing a 10-15% increase in price. Looking back now, that is only a fraction of the spike we are witnessing due to the situation in Southeast Asia.
The Impact on Prices
With an estimated concentration of over half of Western Digital's hard drive production base in Thailand, along with about half of Toshiba's, it is understandable why we are seeing such significant increases in price.
We have heard estimates as high as an expected 25-30% reduction in hard-drive production that will extend through the rest of the year and possibly through the first quarter of next. This degree of shortage will likely spur companies to buy up as many hard-drives as they can to maintain their own supply of products, further pushing prices up.
WD and Toshiba have other facilities in Southeast Asia which they can leverage, but this cannot possibly compensate for the difference because:
- Not all facilities are built the same
- A complete shift of production and supply chain will be very difficult to achieve
- Even if all supplies and components are successfully shifted to new locations, it is unlikely that the supply chain will yield the same level of production (efficiency of this kind often takes time to develop)
- They would be starting from a position of a loss due to the time spent not producing
The Impact on the Industry
Some speculate that this could somewhat shift the landscape of the hard-drive business. Of the two top manufacturers, Western Digital and Seagate, the latter has been relatively less affected because its facilities have avoided the brunt of the damage from the flood. But while their Thailand factories may be dry and operational, they are and will continue to suffer from the extensive supply chain problems from shut-down suppliers. Although an increase in hard-drive prices for Seagate lagged behind WD, we are starting to see their products rise now as well.
However, there may also be some potential opportunities for companies willing to take advantage of them. Is there anyone who couldgain from hard drive storage?
All of this turmoil leads to an interesting question though: who stands to benefit from this mess? Analyst firm Sterne Agee came out after the WD report and said OCZ is going to see a bump in sales due to the lack of HDD supply. Taken with a grain of salt, Sterne Agee covers OCZ and has a buy rating on the stock, their point may still be valid. Is there a possibility that the HDD supply problems could cause buyers to go to SSDs as an alternative?
It's not exactly an apples to apples storage decision. Someone looking for a 1TB notebook drive for $120 isn't going to all of a sudden opt for a $1000+ SSD of equal capacity. The enterprise at large isn't going to cancel their orders of hard drives for mass storage and jam SSDs in their servers. That said, as hard drive prices go up and supply is harder to find, anyone who's been on the fence about testing SSDs in the enterprise or thinking about buying a new laptop with an SSD, might find this problem to be the nudge they need to go solid state.
The Impact on You
How is the situation in Thailand affecting your business? What steps are you taking to deal with it?
The increase in hard-drive costs may push up prices for other low-margin products and components, in turn raising the final prices for manufacturers, distributors, retailers, and eventually consumers. That said, there is room for innovation here. Manufacturers could find other areas to offset the inefficiency of the supply chain; marketers may find creative ways to design attractive packages to boost sales; and consumers... will always find a way to get what they want.
In the end, hard-drive prices will inevitably go down. But in the meantime we must all cope with the reality of increasing prices.