Hard Drive Prices To Remain High Until 2014: Report

The quick recovery in hard drive production since last year's disastrous Thailand floods will not result in a return to pre-flood pricing until next year, according to a new report.

IHS iSuppli, an El Segundo, Calif.-based analyst, on Wednesday reported that hard drive average selling prices reached a low of $51 in the third quarter of 2011, but rocketed to $66 in the fourth quarter of 2011 and the first quarter of 2012 before falling marginally to reach $65 in the second quarter.

The spike in prices late last year stemmed from severe floods in Thailand which wiped out nearly a third of the world's hard drive manufacturing capacity.

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IHS iSuppli estimated that the Thailand floods caused fourth-quarter 2011 hard drive shipments to plummet by about 29 percent over the previous quarter. However, shipments rose 18 percent in the first quarter of 2012 and 10 percent in the second quarter.

During the third quarter, IHS iSuppli expects shipments to rise another 10 percent to reach 176 million drives, the first time total shipments will exceed last year's third-quarter shipments of 173 million drives since the floods.

Enterprise drive supplies and pricing were hit especially hard because of the flood thanks to a strong overall storage market combined with a relatively weak PC market.

Fang Zhang, analyst for storage systems at IHS iSuppli who authored the analyst firm's latest report, wrote that average selling prices will remain above pre-flood levels until 2014 in part because of recent huge mergers that have left the hard drive industry with only two key players, Cupertino, Calif.-based Seagate and Irvine, Calif.-based Western Digital, controlling about 85 percent of the market between them.

It is a sentiment shared by Todd Swank, vice president of marketing at Nor-Tech, a Burnsville, Minn.-based custom system builder.

Seagate's acquisition of Samsung's hard drive business and Western Digital's acquisition of Hitachi GST have created a market duopoly, Swank said. "Seagate and Western Digital would be crazy to get in a price war," he said.

NEXT: Lack Of Alternatives Plus Long-term Contracts Keeping Prices High

Prices have fallen somewhat from their peaks, in some cases significantly thanks to the lower need for brokers, Nor-Tech's Swank said.

"Immediately after the floods, there was dire speculation that the hard drive production volumes would not return in 2013," Swank said. "So everyone started buying up stock. Then they realized that supplies are available, and they were sitting on overpriced drives. Seagate and Western Digital have dropped prices somewhat, but not anywhere near pre-flood pricing."

For the foreseeable future, there is no real alternative to traditional spinning hard drives, Swank said. SSDs are still expensive even though their price-per-capacity points is falling, and despite the fact that new form factor systems are increasingly looking to SSDs as a primary storage device.

"New form factors like Ultrabooks are an opportunity for the SSD industry," he said. "And new Ivy Bridge solutions for a new line of tiny PCs could push demand for SSDs. But there's still a huge need for hard drives. I recently heard Seagate's CEO saying that just the growth of data alone exceeds the capacity of all SSDs being sold."

IHS iSuppli's Zhang also said that another reason for continuing prices is the fact that several PC OEMs in the second quarter signed long-term agreements with the hard drive vendors that provided pricing guarantees but locked them into pricing about 20 percent higher than pre-flood levels.