This holiday season might be a big one for SSD manufacturers. Like most tropical regions, Thailand experiences dry and rainy seasons, which are somewhat predicable, with the rainy season beginning in March or April and ending by October. Flooding is not uncommon, and so the most flood prone, and economically important areas, such as those where Western Digital, Seagate and their componenent suppliers set-up shop, often end up being the most well protected. Unfortunately this year's flooding wouldn't abide the measures taken against it, and so the levies, dams and pumps failed to protect the factories that are the lifeblood of the Thai economy. The loss of industry will have a global impact, but it's the loss of life, home and livelihood that will have a much longer impact on the Thailand's people than on our desire for magnetic storage. We'll leave the plight of the people to be covered by more capable journalists, but we'll do our best to lay out the impact on our beat.
Western Digital was one of the first to lay out the impact of the flooding on its operations. The initial flooding led to a temporary shutdown, a result of disruptions to transportation and utilities in the region. Five days after their first press release, WD announced that two of their facilities in and around Bangkok had been flooded and suffered damage. In addition, their local component suppliers had been disrupted, potentially causing disruptions at facilities outside of Thailand. Seagate told a similar story in their press releases. Both companies issued assurances that their employees were safe, but made clear their expected financial hardship. So what does this all mean?
WD and Seagate each have facilities and component suppliers outside of Thailand that will be working overtime to fulfill the needs of their customers. It's possible, but unlikely, that manufacturing capacity at the other facilities can be maximized and that the overall impact to the consumer will be minimal. What's more likely is that production will be optimized towards fulfilling contract obligations and satisfying their biggest customers. Here's the hard news: you are not their biggest customers. Dell, Apple, Lenovo and HP are the biggest customers in the hard drive market, so it's likely that nearly every drive that rolls off the line will end up in their PC's and notebooks. No PC manufacturer wants to raise prices, especially as they approach the holiday season, so if you're in the market for a new laptop, don't worry, you'll be fine. If you were planning on building your own desktop, or populating a network storage device, then expect to pay much more than just a month ago.
The reality is, though, that even those of us interested in building our own personal PC right now, or getting a new NAS are really a big enough market for this to be anything but a blip. See, just behind the PC OEMs in the magnetic storage market is the cloud. Enterprise customers have been implementing SSD solutions for increased throughput, but when handling massive amounts of data, massive amounts of storage is necessary, and for that magnetic storage is unlikely to be replaced anytime soon. New deployments will likely be delayed or downsized, in only the rarest of cases is delay a worse debt than increased cost. Essential deployments will make do with the increased costs; few if any companies will resort to even consumer grade SSDs, the cost per gigabyte remains far higher than even the elevated prices we're seeing in the HDD market. Where enterprises will be squeezed is in replacing failed hard drives. In mission critical deployments hard drives are constantly tested and when they reach a certain wear level they are replaced, before failure could cause critical data loss. Some of these deployments may increase the amount of allowable wear on their drives, delaying replacements in the hopes that available supplies can get them past the shortage.
So then, unless you're a PC OEM or work for an enterprise solutions company, you're unlikely to see any large impact from the work stoppages in Thailand. Certainly anyone replacing a hard drive, or building something new will have to take this new pricing into account. We can fully expect the October to December quarter to show significant drops in retail sales for WD and Seagate. Some users might look to SSDs, but the bump in sales will be primarily in the smaller boot drives; larger drives that can be used for file storage will remain prohibitively expensive. That won't stop SSD manufacturer's from offering steep price discounts across their lines, and e-tailers and retailers alike will be baiting the hook with further discounts around Black Friday, and throughout the rest of the holiday season. The shortage is expected to persist till at least January of 2012, so anyone holding off an HDD purchase, enthusiast, PC OEM, enterprise manager or otherwise, needn't wait too much longer.
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arnavvdesai - Monday, November 21, 2011 - linkWhile the article was nice, I kinda misunderstood that AT would list its own experiences if any regarding the shortages in HDD.
I am curious if a website like AT will face issues regarding their website or are they hosted on a completely third party service & they don't have to worry about day to day operations at their server center.
JasonInofuentes - Monday, November 21, 2011 - linkSorry for the confusion, we were speaking in the more general "we," as in all of us enthusiasts. Glad you liked the article though.
Barfo - Monday, November 21, 2011 - linkWhen are prices expected to go back to pre-flood levels?
JasonInofuentes - Monday, November 21, 2011 - linkTough to say for sure, that's why we didn't, but not long after the new year.
jjj - Monday, November 21, 2011 - linkSorry but you should have done your homework much better.
HDD makers will prioritize the enterprise space bacause there they get high margins,as for SSD it takes time to qualify a SSD so it's not much of a solution.
Seagate has no factories flooded,fromt hat point of view they are fine and they estimate Q4 production at 41-45 mil units,down from 50.7 mil; units in Q3.
WD on the other hand is in a lot more troubles,besides having their factories flooded they make the vast majority of their sliders in Thailand so their production is greately impacted.
WD expect in Q4 to ship 22-26 mil units,down from 57.8 mil in Q3.
Toshiba is under water too but they expect some production in january (don't have very recent info about them).
Everybody should be impacted to some degree by parts shortages,but WD is hit by far the hardest.We are talking about flooded clean rooms,and equipment that needs to be requalified after sitting under water.
As for things getting better in january,well, it's more likely for things to get worse in january.This year at least there was inventory in the channel but as that gets depleated there will be bigger problems in Q1 next year. In Q4 Seagate estimated that the industry can produce 110 - 120 million units vs demand at 180 million units.
Things could get a bit better towards the end of Q2 2012,HP today ,for example ,made such an estimate but they admit that the picture is not very clear just yet.
Seagate could have 60 mil capacity in Q1 plus 10 mil from Samsung but only if there are no parts shortages.WD needs time,maybe 6-9 months to clean a cleanroom.Parts shortages are problematic too,a lot of custom parts,made by a lot of machines that got destroyed and there is no capacity to make those machines.We can hope that we'll see more drives with less platters to increase the numbers of drives available but the problem is really serious and won't end all that soon.
As for prices OEMs are paying,they are up,quite a bit.
JasonInofuentes - Tuesday, November 22, 2011 - linkThe point isn't whether WD will struggle, it will. The point is whether the market will struggle, and the answer remains that capacity from manufacturers that didn't suffer from the flooding will make up the market deficit and the impact to the market won't last as long as the impact to WD.
As far as what will be the biggest priority, enterprise or OEMs? Enterprise margins are large but looking at the revenue breakdown for 3Q11 and you see $5 Billion for their enterprise hardware division and $10 Billion for their Personal Systems Group. And when you consider PSG was at the time burdened with an over $700 Million dollar write-off for winding down the WebOS group their revenue is almost a billion dollars off. There's no way that either margins in PSG to be so small nor for enterprise margins to be so large as to make up a $5 Billion difference. And again, going into the holiday season, HP will not raise prices on notebooks or PCs and they will not decrease discounts. And with several new or refreshed notebook lines, I expect them to push hard on all fronts.
Thanks for the comments.
tiro_uspsss - Tuesday, November 22, 2011 - linka report from WD saying it would take *SEVERAL* quarters to get back to normal? :( I thought I read that somewhere..
JasonInofuentes - Tuesday, November 22, 2011 - linkAgain, WD is the single case. The larger market will compensate. Thanks.
tristanbob - Wednesday, November 23, 2011 - linkI have seen several OEMs (including Dell) offer 2 small hard drives in a RAID 0 configuration (2 x 500 GB), probably as a way to deal with this issue. I don't recommend anyone using RAID 0, so it is suprising that the OEMs are offering this in standard packages. Perhaps the reason for the small hard drives is that they are already manufactured and easier to acquire.
fufinache - Saturday, December 31, 2011 - linkLet's not forget about the people who are willing work so hard for so little who give us the luxuries of these high tech devices that we can afford for so little. I assume they don't get paid very much because of this.
I'm grateful for all that they have done for us and hope the flooding has not affected their lives and they have a safe home to return to and the economy can rebound quickly in the new year to prevent any loss of jobs.