Hard drive market might not fully recover until 2014

Inflated pricing is a temporary fix for the hard drive industry, but don't expect revenue numbers to recover completely for at least two years.
Written by Rachel King, Contributor

Bad news for the hard disk drive industry. A new report from market intelligence firm IHS iSuppli suggests that the beleaguered market might not recover until at least 2014 following devastating floods in Thailand last fall that had a serious impact for suppliers with factories there.

In February, IHS analysts previously predicted that we wouldn't see signs of recovery until at least the third quarter of 2012, but even that might have seemed too optimistic.

Yet, shipments still rose by 18 percent to 145 million in the first quarter and then by 10 percent to 159 million in the second quarter.

Fang Zhang, an analyst covering storage systems at IHS, explained in the report that this all has to do with higher pricing, which is really just a band-aid for the problem.

HDD manufacturers now have greater pricing power than they did in 2011, allowing them to keep ASPs steady. 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.

Overall, the big predictions here are that while shipment levels might continue to increase in Q3 2012, pricing will remain inflated throughout 2012 and 2013.

So far, only Seagate seems to be managing its finances and inventory well enough through 2012 so far. The Cupertino, Calif.-based storage giant just bought out French competitor LaCie to compliment its hard drive portfolio for both consumer and business hard drive and server solutions.

Furthermore, along with strong earnings for the second fiscal quarteranother report from IHS iSuppli posited that Seagate actually got a boost from the natural disaster. That’s mainly thanks to geography as Seagate’s HDD manufacturing plants are on higher ground, in comparison to Western Digital, which saw its facilities engulfed by the floods.

Seagate’s momentum continued through the third fiscal quarter with solid earnings and revenue announced in April.


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