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HDD oligopoly to keep post-flood prices high till 2014

Surging demand and vendor lock-in delays return to 2011

Internet Security Threat Report 2014

Hard disk drive prices are unlikely to return to pre-flood levels until 2014 despite rising production levels, thanks to surging demand, vendor lock-in and a market dominated by just two suppliers, according to analysts.

IHS iSuppli’s latest Memory & Storage Market Brief report revealed that the average selling price (ASP) for the entire HDD market rose 28 per cent, from $51 (£33) in Q3 2011 to $66 (£42) in the fourth quarter.

However, with the floods now a distant memory, production has been getting back on track and will recover completely by the third quarter 2012, the report said.

Shipments are expected to rise by 10 per cent from the previous quarter to 176 million – the first time this year they will have exceeded 2011 levels – but average selling prices will remain little changed, according to the analyst.

Storage systems analyst Fang Zhang said part of the reason for the continued high prices is the current concentration of market share.

“With the two mega-mergers between Seagate/Samsung and Western Digital/Hitachi GST, the two top suppliers held 85 per cent of HDD market share in the first quarter 2012,” he said.

“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.”

A related factor is that an increasing number of OEMs have signed up to long term contracts with said HDD makers, in order to obtain guarantees on shipments. These deals effectively lock them in to prices around 20 per cent higher than pre-flood levels, said iSuppli.

Finally, demand for HDDs continues to soar, inflating prices.

Demand is mainly driven by corporate and consumer-related cloud storage and is predicted to continue later in the year thanks to a surge in PC sales on the back of the launch of Windows 8 and Ivy Bridge Ultrabooks. ®

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