Are high hard drive prices the new normal?

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

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.