Hard drive prices have more than doubled in the open market, after recent floods in Thailand affected output at factories that account for about half of all global production.
The hard drive shortage and resulting increase in prices could see desktop and notebook costs increase by about 15% on top of already inflated prices caused by the rand weakening against the US currency.
Thailand was hit with floods that devastated the country during the current monsoon season. The flooding, according to Google, was the worst in the past 50 years and resulted in more than two-thirds of the country being swamped.
Google Crisis Response says hundreds of factories have been closed, and over 900 000 families and businesses were impacted, and hundreds of lives lost.
As a result, hard drive prices have skyrocketed and will add even more to the cost of a PC.
ITWeb reported in September that PC prices would increase by as much as 15% as the channel could not absorb the impact of a sharply devalued rand.
Under water
Western Digital CEO and president John Coyne said in October that the company temporarily suspended production at two factories in Thailand to protect staff. The factories had been “inundated by floodwater”.
Coyne added that many of its component suppliers were impacted, constraining material supply.
“We are working with suppliers to assess the extent of their impact and help devise short- and long-term solutions. This is a complex and dynamic challenge that will require extensive rebuilding for the Thai people and government, and present unprecedented obstacles to the hard drive industry for multiple quarters.”
Seagate Technology said in a statement all its factories were operational, but the hard disk drive component supply chain was disrupted, which would constrain supplies.
“Given the volatility of the situation, it is unclear what the magnitude of the supply chain disruption will be to Seagate's hard disk drive output from its Thailand operations,” it said.
The company is managing its supply chain, but expects stock to be under pressure this quarter.
IDC notes operations have been disrupted at more than 12 hard disk drive (HDD) factories. “This will have a direct impact on worldwide PC shipments through the first half of 2012.”
In the first half of this year, Thailand accounted for 40-45% of worldwide production, and by early November, nearly half of this production was affected by floods, says IDC.
“The full extent of the damage to HDD industry factories will not be known until the floodwaters recede, although it's already clear there will be HDD supply shortages into the first quarter of 2012.”
IDC says PC vendors should expect significant HDD shortages by the middle of this month that will carry on into the first quarter of next year, which could decrease shipments in the first quarter of 2012 by up to 20%.
The research company says the impact in the festive season period will be limited as many shipments already took place and remaining PC production can be finished with current stock.
As a result of the floods, HDD prices will increase and will only start stabilising by around June, notes IDC.
"The HDD shortage will affect smaller PC vendors and lower priced products most,” says Loren Loverde, programme VP of IDC's worldwide consumer device trackers. However, says Loverde, the largest vendors will also see shortages.
No escape
SA is not immune to the global shortage and prices have already shot up as supply constraints hit the local sector.
Dave Miller, CEO of Incredible Connection, says supply will be affected for the next six to seven months, which has led to prices shooting up. He says this will have a spill-over effect on pricing and supply of PCs, netbooks and notebooks,
The entry-level price unit will climb at the beginning of 2012, says Miller. Incredible has ordered stock to ensure its customers do not see any shortages, he adds.
“Consumers and businesses alike should really snap stock up before the shortages take affect and price increases hit,” he comments.
Mustek CEO and founder David Kan says the floods will also impact the supply of components, such as discs and reading heads. The recovery will take a lot longer than everyone thinks, he adds.
Prices into the channel have already increased by between 40% and 50%, and the open market is paying up to double what it would have before the flood, says Kan.
The market will start recovering around February or March next year, but consumers can only expect the situation to return to normal by about the end of the second quarter, notes Kan. He says the increased prices present a problem for consumers on top of the weaker rand.
Kan says the stock situation is “very bad” and even though Mustek is willing to pay higher prices, there is no guarantee it will receive devices. In the meantime, Mustek is buying external drives and stripping the housing, says Kan. “At least you have a drive.”
Syntech SA director Ryan Martyn says the shortage is becoming “more and more of a problem”. He expects the real shortage to affect the market in the first and second quarter of next year.
Martyn points out tier one original equipment manufacturers have bought up as much stock as they can. The shortage will result in prices moving increasingly higher, he says.
HDD costs increased by 173% in the past month and are expected to triple in price by year-end, Martyn notes. The sale of lose drives has already dried up locally and people are now looking at solid state drives as alternatives, he says.
Some companies are offering refurbished drives as replacements, Martyn adds. “I wouldn't rely on a refurbished drive for my data; it's a short-term solution.”
Hannes Fourie, IDC senior analyst for systems and infrastructure solutions, says the shortage will impact the overall PC market, especially back-to-school sales and last-minute government spending in the first quarter of next year.
The shortage could push up the cost of PCs by about 15%, on top of the 10% to 25% increases recently seen due to the weaker rand, says Fourie. PCs will cost more than they are worth, he adds.
“The clever consumer will wait unto quarter two, if they can,” says Fourie. He notes that upgrades and PC repairs will also be affected.
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