NetApp, Lenovo Raise Prices, Citing Thailand Flooding Effects

Lucas123 writes "First HP, then EMC, and now NetApp has hiked up the price of its hard disk drives by 5% to 15%. The vendors sent letters to users stating that the flooding in Thailand had caused major component shortages, and while they tried to absorb the supplier price increases, each had to eventually give in. Lenovo also announced it has run out of certain drives for its PC systems including some popular 7,200rpm models."

Comments

I'm starting to wonder about this

[msobkow]

Are they seriously saying there are NO other plants in the world to take up the slack? The entire industry put ALL their eggs in one basket?

Has no one ever heard of having multiple supply chains before?

What the hell is management doing?

Re:I'm starting to wonder about this

[beelsebob]

No, they're seriously saying that a lot of production was there, and that if you take even 40% of production away, you still have major shortages. You don't build plants to produce nearly twice as many drives as there's demand for, just because it may be that some massive natural disaster comes along.

Re:I'm starting to wonder about this

[DCTech]

It's a cost saving issue. Having multiple plants doubles or triples the expenses and is a logistics nightmare. This would mean that laptop prices would skyrocket in no time. Paying 5-15% more for hard drives for a while is much cheaper than paying double amount for whole laptops all the time. And since someone is going to cut those prices, it means they all need to.

Stuff like this doesn't happen often either. There haven't been such catastrophic floods in Thailand for 30 years. Sometimes shit happens.

Re:I'm starting to wonder about this

[Hadlock]

Someone famously said that the distance between the platter and the read head is roughly equivilent to flying a 747 over Mt Everest with one inch to spare. It's not like joey and bubba can buy two pallets of platters, three pallets of drive cases, and a pallet of controller assemblies, a gallon of glue and assemble 20K drives in their garage over a weekend while burning through a pack of cigarettes. These aren't cuban sweat shop cigar factories, these devices are put together in enormous clean rooms with super tight tolerances.

Re:I'm starting to wonder about this

[fred911]

Last time I remember something like this happening was in the early 90's when the cost for sim memory shot up almost overnight due to a fire in a chemical plant. At that time I sold about 30 used, pulled, 4 meg sims for like $125 usd almost overnight. Major panic.

  But, one would think these days, buyers would have futures to end this type of supply problem.. Like every other manufacturing industry.

Re:I'm starting to wonder about this

[gomiam]

According to Upgrading and Repairing PCs it would currently be like having 4 Sears Towers floating on their sides, side by side, 5mm over the ground moving at almos 7800 kilometres per second while reading 2 centimetres long bits on tracks 30 centimetres away from each other.

Re:I'm starting to wonder about this

[Kjella]

But, one would think these days, buyers would have futures to end this type of supply problem.. Like every other manufacturing industry.

Futures only set a price, they don't magically mean that a factory that's underwater will still deliver. Contracts typically have a "force majeure" clause so they don't have to deliver in this case. And they will take priority, so the more is secured with futures the worse the price changes in the open market will be. You can't make a shortage go away with contracts.

Re:I'm starting to wonder about this

[Genda]

Sadly most corporate management has trivialized the importance of planning for the growing strength and frequency of precisely this kind of natural disaster. Global climate change is clearly happening and whatever its cause, it makes good solid predictions of where to be careful and where to be safe. Heavier flooding particularly near large bodies of water and tropical regions is well understood. Lowlands will experience more frequent and substantial flooding events. Wildfires and social impact to local populations will be significant as the growing number of flooding and drought events hit tropical and temperate zones around the world.

Business needs to stop politicizing climate change, and begin using the data to protect production in the face of growing environmental instability.

Having redundancy costs

[YA_Python_dev]

At this point I suspect it would be more cost-effective for the rest of the world to pay a one-time contribute to relocate the entirety of Thailand somewhere less affected by natural disasters.

Re:Having redundancy costs

[ColdWetDog]

At this point I suspect it would be more cost-effective for the rest of the world to pay a one-time contribute to relocate the entirety of Thailand somewhere less affected by natural disasters.

I suggest they move it all to Alaska. We don't have any good Thai food here (yet).

Contrast with consumer hard drive prices

[shoppa]

All the consumer hard drive retailers (e.g. Newegg, microcenter, anywhere) hiked hard drive prices by 200-400% months ago as a response to the floods. I know the big name storage vendors spend less on spinning media and more on, well, overhead and profits, but they come out looking like good guys if they only hiked their prices 5 to 15 percent.

Re:Contrast with consumer hard drive prices

[HBI]

Link to FT article

Key quote:
"Roughly 25 per cent of all global hard drive assembly facilities are located in Thailand, according to industry tracker iSuppli, which said supply would be constrained until the fourth quarter of 2012."

75% of the manufacturing capacity is unaffected. 25% was affected, though production was restarted back in December. The prices remain at about 200-250% of pre-flood prices, even for producers completely unaffected by the floods. Check Newegg yourself... This amounts to "not gouging" and "not cartel pricing" how?

Re:Contrast with consumer hard drive prices

[Bravoc]

I worked at NetApp for 11 years. The intent never was to sell hard drives, the intent was to sell the software; ONTAP, Snap*, etc.

Dan Warmenhoven used to tell people "give away disks, but sell the software licenses." They make almost nothing on drive sales, they make huge margins on the software

Re:Contrast with consumer hard drive prices

[itsme1234]

First of all at least please read the link you provided: "iSuppli also said the flooding may have affected operations of Nidec Corporation, a Japanese company that supplies more than 70 per cent of the motors in global hard drives."

Then, even if the numbers you quote are right I don't see any indication for "cartel pricing" or "gouging" or anything else. The fact is PAYING CUSTOMERS don't think the prices are high enough and they literally just don't stop buying. If you try to sell a now a drive at the "normal" price or even twice that it will just sell out and literally there aren't enough drives in the world to keep the drives on the shelves at prices before "crisis".
There is no arbitrary limit at which prices would stop. Even a difference of 1% between supply and demand can increase prices 10 (or 100) times if the customer just don't STOP BUYING.

Re:Contrast with consumer hard drive prices

[TheLink]

First learn something about economics: http://en.wikipedia.org/wiki/Price_elasticity_of_demand

If there are enough people willing to pay 250% of the prices, why should IT retail companies sell stuff lower? They aren't charities.

In a theoretical world they each would now have 25% fewer hard drives to sell each month, that means fewer entire computer systems sold, which means lower total profits. Meanwhile they still have to pay the same rents to the landlords, the same salaries to their workers. So guess who they'll try to get the money from? Those who need hard drives badly enough. In the real world it'll be even worse and messier than that.

BUT if not enough people are willing to buy, the prices will go down, and the retailers will just have to make less or lose money. In my area, rumour is a large retailer has thousands of unsold drives so they will be reducing the prices to try to get rid of them before production gets back on track.

Imagine there's just about enough oxygen for everyone in the world, and everyone normally paid about USD1 per day. Assume also it's a free market capitalist world.

Suddenly there's a disaster and there's only enough oxygen for 75% of the world. How do you decide who dies? The evil socialists might have some committee do it and thus kill 25% off. But the free market capitalists will let the market decide - and so the price will go up, and likely more than 25% will die (the rich being able to easily afford USD10/day and more). Is that still considered gouging? Maybe. But is it cartel pricing? No - there is no need for a cartel to raise the prices.

Re:Contrast with consumer hard drive prices

[zippthorne]

There is no such thing as gouging. There is only "price rises or falls to market-clearing levels."

First of all, if supply drops to 75%, the market price will of course be affected. And it will affect everybody selling whether they were specifically affected by the floods or not. It's a market price on a commodity product.

The effect is to shift the supply curve (on a P-S plot) temporarily to the right - at current prices, the supply is 75% of what it previously. This curve might be pretty flat in the short term, too. The demand curve is unchanged, of course, but the market price absent price controls (which would only result in shortage anyhow), moves to a new position - it is the intersection of the demand curve and supply curves.

You may be making the mistake I have seen many make in comments about this event that the price should rise 33%, making the total revenue the same as it was previously. This would only be the case in the event that the demand curve is linear and has an elasticity (slope) of -1. The linear assumption is ok for small perturbations (and, indeed, is what I used in the above paragraphs) and first year economics courses, but even with that assumption demand elasticity depends on many factors. It is folly to assume that it will be any specific value without actually doing research into the particular industry.

A brief rise in price isn't gouging. It's the market finding the new price, and is justified by the conditions. There are two things you might have been buying in the aftermath of the flooding - 1) a hard drive and 2) a hard drive right now. If you need #2, then you'll certainly be willing to pay more than someone who just needs #1 and can afford to wait for the price to spike and drop.

Re:Imagine...

[Gadget_Guy]

I'm in the minority where we actually wear computers out (not just the disks), even when we could afford new ones. I'm not doing more demanding tasks than I was 5 years ago, so whats wrong with a 5 year-old computer?

How about a bit of compassion for those Russian hackers who are also using your computer. Why should they have to put up with sub-standard hardware to run their botnet?

Jeez, some people just have no sense of helping the community!

But seriously, I think that in this day of ever more powerful smartphones, an increasing number of people are wearing their computers out.

Re:Individual drive cost

[alphatel]

I had thought about buying a case of 2TB drives just before the flood because they were so damn cheap. Would have made a nice profit. Honestly they aren't so expensive at the moment, but certainly much more than I would like to pay.

An excuse for the future.

[noobermin]

I have a suspicion that like the airlines baggage fees, they'll keep prices this high even after the issues are resolved since consumers will be used to them at that point.
Not to downplay the real loss of life and property, but the supplier might use this as an opportunity for the future.