Why drive vendors are cutting their warranties

Disk drive vendors Seagate and WD have cut their warranties by up to 80%. Why now?
Written by Robin Harris, Contributor

The redoubtable Chris Mellor at the Reg noted the substantial decrease in most warranty terms. Does this have anything to do with supply constraints?

Of course it does - but its the story behind the changes that's interesting.

The floods Flooding in Thailand has cut disk drive production by several 10s of millions out of an annual ≈600 million number. Responding to supply and demand, the price of drives has risen 25-50%.

Mellor quotes Seagate's explanation:

By aligning to current industry standards Seagate can continue to focus its investments on technology innovation and unique product features that drive value for our customers rather than holding long-term reserves for warranty returns.

Nope, Seagate is scared. Here's what is really happening.

Pricing dynamics By cutting reserves held for returns, the vendors are cutting costs. Now, Seagate was happy 6 months ago to offer a 5 year warranty. They weren't too concerned about their ability to invest in "technology innovation and unique product features".

But now they are?

No, they've run into pricing pressure: customers don't want to pay the suddenly higher prices. 3 years ago that would have been Too Bad - and PC vendors and buyers would have paid.

But PC demand is flat and - more importantly - there's a substitute technology: the SSD. As a result, the price elasticity of demand isn't what disk vendors thought it was. Vendors are willing to not ship their low-end, low-margin PCs rather than take even lower margins than normal.

The Storage Bits take There are 2 elements here: price elasticity and disk drive capacity overshooting the market. The latter has been the unspoken risk to the drive business for the last 5 years.

Business users don't need 1TB notebook drives. Few need more than 120GB, unless they have big music or video collections. With the advent of cloud services like Pogoplug and iCloud, who needs the risk of carring everything they've ever done around?

This isn't new. The dizzying increase in disk areal density over the last 3 decades has led to market overshoot in 14", 9", 8", 5.25" and 3.5" drives. Each overshoot has led to the adoption of a smaller form factor.

Now 2.5" drives are overshooting too. But the difference today is that there is no smaller form factor for drive vendors to adopt. SSDs have killed the 1.8" drive.

Seagate has the right idea with their disk/flash hybrid drive, the Momentus XT - which I'm testing out - but since no other vendor offers an equivalent the big buyers aren't biting.

Drive vendors will get back to normal capacity faster than expected a month ago and sales will improve. But this disruption has everyone in the disk food chain rethinking their business models - and that isn't good for the status quo.

The good news for you: this doesn't mean less reliable drives. Just lower cost.

Comments welcome, of course. I wish I'd gotten an SSD on my new iMac. Mac OS X Lion expects an SSD.

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