We heard a similar story with the Japan earthquake/tsunami/meltdown disaster: plants offline; component shortages; widespread disruptions forecast. But somehow things have kept going for most vendors with the exception of Lexus, Toyota and Honda.
What’s real
There’s 4 feet of water in the WD plant. Even after the flood waters recede a substantial clean up is required: one analyst forecast 56 days of downtime.
That plant produces about half of WDs disks. WD produces about half of the world’s disks, so worst case we’re looking at a 25-30% reduction in global disk supply over the next 2-3 months.
Global production is ≈50 million drives a month, so the shortfall could be 30-50 million drives. Yeah, that would hurt.
Components?
Disk component suppliers have also been affected, but there’s less visibility into their condition. Worst-case so far: the vendor who makes most of the world’s spindle motors has a flooded plant.
But shortages of other critical components are possible, and could affect all vendors, not just WD. OTOH, other plants could ramp up to fill the void - and it would be in their financial interest to do so.
The Storage Bits take
A few takeaways:
- No raw drive deals for 4-6 months. Your best bet for deals on capacity will be drives that are in external cases.
- Smaller drive sizes will be scarce. Available components will go into the newest and most profitable products first - not smaller capacity drives.
- PC shipments will be affected. You’ll have more luck with systems that were already in inventory, not systems with the latest and greatest.
- SSDs are a wild card. Will vendors go for volume or margins? If the latter there could be some good deals this holiday season and especially come February-March as inventory is replenished.
- Apple could be hurt. Apple’s volume is much smaller, and with their increasing move into SSDs they have less bargaining power than Dell or Lenovo.
Large buyers, like HP, still have power with vendors. Asus may have problems getting drives, but if there are drives to be had, HP will get them.
SSDs don’t have the faintest hope of replacing disks en masse, but disk vendors know that price is their big advantage. That will limit the upside pricing changes to vendors. The issue bigger issue will be rationing, not price gouging.
The dynamic to watch is how this affects how drive vendors allocate product to their in-house storage systems operations. This is a high-growth business for margin-hungry drive vendors.
Seagate and WD both have healthy, growing and more-profitable-than-raw-drives SOHO/SMB storage businesses. Given a choice between shipping a 10% gross margin drive to Asus or a 25% GM subsystem, which will they prefer?
Comments welcome, of course. Thanks to global warming we need to get used to these kinds of problems - especially flooding.
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