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Higher Hard Drive Prices Are the New Normal
An anonymous reader tips an article looking at the state of HDD pricing now that the market has had time to recover from the flooding in Thailand and a round of consolidation among manufacturers. Prices have certainly declined from the high they reached during the flooding, but they've stabilized a bit higher than they were beforehand. Quoting:
"Are things going to change any time soon? We doubt it. WD and Seagate both reported record profits this past quarter. In Q1 2011, Western Digital reported net profit of $146M against sales of $2.3B while Seagate recorded $2.7B in revenue and $93 million in net income. That’s a net profit margin of 6% and 3%, respectively. For this past quarter, Western Digital reported sales of $3B (thanks in part to its acquisition of Hitachi) and a net income of $483 million, while Seagate hit $4.4B in revenue and $1.1B in profits. Net margin was 16% and 37% respectively. With profit margins like this, the hard drive manufacturers are going to be loath to cut prices. After years of barely making profits, the Thailand floods are the best excuse ever to drive record income for a few quarters. All of this means that while we expect prices to gradually decline, holding off on a necessary purchase doesn’t make much sense."
You mean, companies will collude together in order to raise the price of goods in that market? I'm shocked, shocked I tell ya!
Most articles I've seen indicate that rotational storage (and existing flash-based SSDs) will be replaced within 2 years by memristor-based storage or similar non-rotational, non-flash storage. It makes no sense for hard drive manufacturers to "race to the bottom" when they've already consolidated into 2 major manufacturers and sales have such a short term outlook.
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This really is Economics 101. The maximum profit margin comes at the point where the supply curve and the demand curve meet. Raising prices above that point results in fewer sales and therefore less profit. Companies won't stop following this rule just because they have an "excuse" for raising prices. Partly because they didn't need an excuse in the first place, but mostly because they still have to compete with other companies.
In a perfectly competitive market with elastic supply and demand and where there are completely rational and well-informed consumers and producers, yes, your description of the market works.
The problem is, this is a case where there are only two major suppliers, demand is relatively inelastic, and the vast majority of consumers have no idea what a hard drive costs to make. In other words, what you're seeing is more like monopoly utility pricing - and that means that as long as higher prices can be reasonably justified to the consumer (flooding in Thailand!) the producer can set and maintain higher prices basically at will.
Why do profits come at a cost? Sure for the consumer but for the manufacturer? Lower warranties further increase profits. It's a win-win for them.
Because when I can't buy a new hard drive that's guaranteed to last more than 2 years I don't buy a new hard drive.
To be fair, quality should go /up/ with the acquisitions so long as you buy drives that were made at the formerly Samsung/Hitachi plants. They didn't buy out those companies then raze all their manufacturing resources and there's no immediate reason to refit the plants and thus reduce reliability. Now, if five years down the line they're not maintaining the plants and they let tolerances slip that'd be a problem.
Granted, I am unsure how the floods affected individual plants, so if it's primarily the high quality plants that were scrapped and they are not rebuilt or rebuilt to a lower standard that would be a problem.
It seems like the 2TB desktop (ie, 3.5") disk is about $110. That's not so bad, considering I bought one for $95 about a year ago, before the floods. A 3TB is $160, about the same as last year from my recollection.
Of course, if you're buying 4x (say to build or replace a NAS), then you do see a noticeable cost difference, but it's not even 25% more.
A 16% (or even 37%) margin is does not indicate windfall profits or ludicrous extortion.
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Companies are run by people. People are NOT rational. Alan Greenspan cited this as a problem, although IMHO Greenspan's bigger problem was to accept that corporations are people and then to assume that they were rational.
Rational actors maximizing profit is theory. Reality is insane people "managing" things into oblivion. If the HDD manufacturers try to squeeze the market to the point where solid state displaces HDD everywhere, and they fail to extract maximum profit because they are greedy, that will not surprise me one bit.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
It's called the "SSD" section on Newegg. You are right that head-in-the-clouds type tech people have been saying that magnetic media will get replaced, but it has just been wishful thinking. However now it is. SSDs sell quite readily. They aren't going to displace HDDs tomorrow or anything, and I'd say that 2 year timeline is a bit optimistic, but they are already making big in roads.
While they don't compete in terms of storage/$ they are getting to the point where they are cheap enough for enough storage that people find them worthwhile. That's all it really takes. Few people actually need 2TB of storage, the idea that SSDs have to be dead equal to HDDs is silly. Many people will decide they can get on just fine with 160GB and would rather have the speed.
Yeah, I recently bought four more so-called "Samsung" 2TB (I already have eight REAL Samsung 2TBs) quick, hoping to get some before the invevitable slide in quality got too bad. And it's GOING to happen. Seagate's corporate policies are going to gut QC and make manufacturing and redesign shortcuts. It's only a matter of time; probably not very much time. When my drives arrived, they had ST part numbers next to the old "HD204UI" designation - and they say "Made in China". I'm crossing my fingers. So far, so good. But I have no idea what I'll do in the future.
An optimist would say that at least some of Samsung's superior design and QC derived reliability will hopefully rub off on the new Seagate. I'm not an optimist. I'm afraid I think your five-year estimate is optimistic. In point of fact, I don't know of any assurance or even indication that they are using the same final assembly plants that Samsung did. For all we know, they are buying the same components (until they can swap in shittier components), and then slapping them together in some inferior jobbed-out Chinese plant.
The big thing I see is that warranty lengths have dropped off to 3 years from 5 years on many of the high-grade models that are selling today. They still sell 5 year warranties, but at a premium. The real cheap ones have dropped to 1 year warranties. Are prices back to where they were before the floods? Almost. Is product quality back to where it was? Nope.
I'll be waiting a little longer until I build myself another RAID. I believe we still have another quarter or two before we see the prices hit their baseline. I've been extending my purchase time frame by doing some serious house cleaning.
And by "my charts" I mean camelegg: http://camelegg.com/product/N82E16822152245
The market spiked and it's slowly returning to normal. It hasn't bottomed. I think that the time required is a combination of rebuilding manufacturing capacity, backlogged demand slowly being filled, and simple price inertia.
The 1TB Samsung (good solid main drive if you aren't using SSD's) drive I was paying $59 for before the shortage and the floods for all my personal and customer's builds is now down to $79.99. And you can get 3TB drives for around $170 again as well. Not bad IMO. I'm sure in another 3-6 months the prices will drop again for the holiday's. The price for that 1TB drive was $79.99 around this time last year as well. Only some manufacturers still have outrageous prices, most notably Western Digital.
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