Global supply of mechanical hard drives will recover from last year's Thai flooding in the third quarter, but prices aren't expected to return to their former levels until 2014, according to the latest report by IHS iSuppli. The market research firm says consolidation in the industry, not shortages, will be to blame for keeping prices high:
"HDD manufacturers now have greater pricing power than they did in 2011, allowing them to keep ASPs steady," said Fang Zhang, analyst for storage systems at IHS. "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."
Because of the floods in Thailand and ensuing component shortages, IHS iSuppli says average hard drive prices soared from $51 in the third quarter to $66 in the fourth quarter. Since then, however, they've essentially held steady. The firm projects a minuscule decline to $65 in the second quarter of this year.
That doesn't track with the recovery from the supply side. Shipments reportedly rose from 145 million in the first quarter of 2012 to 159 million in the second quarter, and IHS iSuppli expects further growth to 173 million next quarter. "This will mark the first time in 2012 that shipments will exceed their 2011 quarterly levels," it says.
I could forgive inflated prices if hard drive makers were suffering, but that doesn't seem to be the case. Western Digital's latest financials show a 230% net income growth between the third quarter of its 2011 fiscal year, which ended before the floods began, and the same quarter this year. (Revenue also went up 30%.) Seagate, meanwhile, saw its net income soar from $93 million to $1.1 billion over the same time period; it even went so far as to spend $1.2 billion on dividends and buybacks.