Are high hard drive prices the new normal?

Are high hard drive prices the new normal?

Summary: Some analysts are predicting that high hard drive prices are the new normal. They're wrong. Here's what to expect.

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TOPICS: Hardware
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Last week ExtremeTech published HDD Pricewatch: Higher prices are the new normal and concluded:

Are things going to change any time soon? We doubt it. . . .

. . . [H]ard drive manufacturers are going to be loath to cut prices. After years of barely making profits, the Thailand floods are the best excuse ever to drive record income for a few quarters. All of this means that while we expect prices to gradually decline, holding off on a necessary purchase doesn’t make much sense. If you need a drive, you need a drive; another six months may not show a dramatic return to form.

With just 3 HDD vendors - Seagate, WD and Toshiba - the drive market is now an oligopoly, a market with few sellers. Oligopoly is common in mature markets with high entry barriers, significant economies of scale and low-to-middling investment returns.

ExtremeTech would be correct if that was all there is to it. But there's more.

Few sellers, few buyers What they left out of their analysis is that while there are few sellers, there are also few buyers. HP alone buys about half of all HDDs. Add in Lenovo, Dell, Acer, EMC and NetApp and the large majority of HDD production goes to a few buyers.

Consumers get the table scraps. Which is good for us.

Purchasing piranhas HDDs are one of the most expensive components in a PC or server. Given their low-margins vendors watch costs. Their purchasing agents are measured on the prices they get.

This means that big HDD buyers will be beating on WD and Seagate to reduce prices as quickly as possible. The Thai floods gave drive vendors a temporary advantage, but as WD's production capacity comes back on line that advantage will evaporate.

HDD buyers typically qualify 2 drives for their products so they'll have options if one supplier has a problem. As supply improves Seagate and WD will soon be battling for multi-million unit orders as they always have.

And that's good for us.

The Storage Bits take Drive prices will largely be back to normal by year-end. Seagate and WD won't like it, but they'll just have to deal.

In the long run drive vendors don't want the kind of supply disruption they've just had. Sure, the extra profits are very nice, but you don't want your customers to start searching for alternatives to your product.

I haven't mentioned SSDs because they aren't a major factor in HDD prices - yet. SSDs are mostly killing the high-end 15k drive business.

Both HDD vendors know that their best bet for higher margins is the consumer/SOHO external storage business, a realization that has been remarkably slow in coming. That's how they'll make most of their margins in the years to come, not by trying to price gouge on raw drives.

Comments welcome, of course. ExtremeTech was right about one thing: if you need a drive, you're currently stuck. But if you just want one, wait a few months as prices steadily drop.

Topic: Hardware

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9 comments
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  • SSD's and touch PC's will mark this decade in IT.

    Have you seen 10-packs of 5.25" floppies for sale in Best Buy lately? How about 100-meg zip disks and drives? I think it's worth mentioning SSD's because the days of persistent random access storage using moving parts will soon be distant memories - oddities kept for a future computer technology museum. In the realm of consumer IT (ie, personal computers now in the 5400/7400rpm HD range), that change will come much, much sooner than this article would suggest. Which is good for us (as Robin might say). It might be in the hard drive manufacturer's best interests to put the SSD price point out of reach by moving towards cheaper and more reliable hard drives now to delay that market shift; although even that could never hold off the coming of the storm.
    Britisch
    • Its been going to happen since forever

      "I think it's worth mentioning SSD's because the days of persistent random access storage using moving parts will soon be distant memories - oddities kept for a future computer technology museum"

      I've heard this my entire working life, remember "bubble" memory?

      Until the alternatives at get with in 2X the $/TB (I remember when it was $/MB) of hard drives they will thrive.
      wally_333
    • It think it'll be hybrid storage for a while.

      PCs coming with both an SSD and HDD for storage. SSDs would be nice to have, but they are too limited yet in storage space (for those of use with huge storage requirements), and too expensive in price.
      The one and only, Cylon Centurion
  • Hybrid drive will be the future...

    Hybrid drive will be the future, SSD is never going to beat HDD in terms of price to capacity ratio. HDD is no were near SSD in terms of perforamce, so hybrids will show up more inside PC and laptops.
    owllnet
  • I am already seeing the prices drop.

    They may not be as low as they were but they are dropping quite fast.
    MeMyselfAndI_z
  • Total Contradiction

    Your the same person that said the very machines that use hard drives are dead and that the ones using ssd's would replace them in 5 years.
    Sqrly
  • SSD already replacing many hard disks, just not in PCs.

    Considering that the iPad and smartphones are displacing PC purchases, one could argue that SSD devices are already making a noticeable impact on hard drive sales.

    The rollout of cloud storage is also going to have an impact. Today, local drives have a lot of empty/wasted/redundant space. cloud storage is a much better alternative in terms of storage efficiency, and it will get better as storage software is better able to recognize an reduce redundant data. Instead of selling 20 disks to HP for PCs, they will end up selling 1 drive to Amazon or Apple.

    So hard drive makers can't afford to gouge consumers too deeply, they have to keep consumers buying big drives that never get filled up and that die and must be replaced on a regular basis.
    terry flores
  • "HDDs are one of the most expensive components in a PC or server." Really?

    Because my Motherboard, CPU, and Video Card all cost anywhere from 3x to 6x the cost of my HDD so I think statement's a little off.
    Crion629
    • Purchasing piranha?

      Crion629 - I believe you'd have a different perspective if you were a negotiating member of the purchasing staff for HP, Dell, etc.
      SlimSam