A Year After Thailand Flooding, Hard Drive Prices Remain High

crookedvulture writes "Last October, Thailand was hit by massive flooding that put much of the world's hard drive industry under water. Production slowed to a crawl as drive makers and their suppliers mopped up the damage, and prices predictably skyrocketed. One year later, production has rebounded, with the industry expected to ship more drives in 2012 than it did in 2011. For the most part, though, hard drive prices haven't returned to pre-flood levels. Although 2.5" notebook drives are a little cheaper now than before the flood, the average price of 3.5" desktop drives is up 35% from a year ago. Prices have certainly fallen dramatically from their post-flood peaks, but the rate of decline has slowed substantially in recent months, suggesting that higher prices are the new norm for desktop drives."

Comments

Why not?

[Severus Snape]

If they can get away with charging the extra, they are hardly going to reduce their profit margins now.

Re:Why not?

[K. S. Kyosuke]

It kind of reminds me of the practices of local gas pumps...well, some of them anyway. When the prices on the international crude oil market go up, they raise their prices. Whey they go down again, they reduce their prices. Only the latency in the former case is noticeably smaller. ;) Bastards.

Re:Why not?

[oxdas]

Public companies do NOT have a fiduciary duty to maximize profits, only to follow the company charter. Even in the most often cited case creating fiduciary responsibility to maximize profits, Dodge v. Ford Motor Company (1919), the court said this in regards to Henry Ford's desire to reduce the price of his cars for his stated, purely altruistic, motives (and in doing so cancel a special dividend to his shareholders):

" We do not draw in question, nor do counsel for the plaintiffs do so, the validity of the general proposition stated by counsel⦠that although a manufacturing corporation cannot engage in humanitarian works as its principal business, the fact that it is organized for profit does not prevent the existence of implied powers to carry on with humanitarian motives such charitable works as are incidental to the main business of the corporation."

My primary problem with your position is not that it is factually wrong (even though it is), but that "maximizing profits" is a purely subjective term and an impossible goal. Short-term and long-term profits have mutually exclusive components. For example, cutting r&d or laying off staff raises profits in the short term, but may lead to declining profits in the long term. Depending on your point of view, any corporate action could be construed as not maximizing profits.

They're not coming down

[thetoadwarrior]

I feel sorry for the people who think prices will go back to what they were.

Lack of competition, recapitalization

[Giant Electronic Bra]

I think it is just a sign that the market is no longer really competitive. There are too few vendors left in the business (basically what, 3 actual manufacturers are left now at this point).

Frankly I doubt this is going to continue for long. With more and more storage moving online (much more efficient use of drives on average), less desktops, movement of desktop and laptop storage to SSDs with falling SSD prices there is just not going to be the demand long-term. In fact the increased prices right now may just represent a need for these businesses to recapitalize and drive R&D. The only justification for hard drives is going to be sheer size (IE mb/$, mb/m^3, mb/watt) and that requires a lot of R&D to keep driving those numbers in a positive direction.

Re:Lack of competition, recapitalization

[Solandri]

I think it is just a sign that the market is no longer really competitive. There are too few vendors left in the business (basically what, 3 actual manufacturers are left now at this point).

Arguably, the state of the HDD industry before the flooding was that it was too competitive. It had some of the lowest margins in the tech industry, resulting in big research names like IBM deciding it wasn't worth it and jettisoning its entire storage division (sold it to Hitachi, who after a decade decided the same and sold it to WD).

So the pricing we're seeing now may actually be closer to where prices should have been for a thriving industry. We're not down to 2.5 manufacturers (Toshiba doesn't make 3.5" drives) because of some grand conspiracy to corner the market on HDDs. We're there because HDD prices were too low for all the other manufacturers to stay afloat, resulting in them merging and being acquired. The extremely low margins meant the process overshot, and there are now fewer manufacturers than you'd expect in a healthy industry.

a page from the oil companies' book

[technosaurus]

Its a pretty simple strategy. Buy out as much of the competition as possible to help control supply. If anything causes increased demand or short supply, raise prices immediately and then only lower them when absolutely necessary to keep regulators off your back. Does this sound like gas prices? I think so. Remember when diesel prices were lower than gas at least all summer? It may not be a monopoly, but when a few major companies own the market and have an unwritten non-compete agreement, it may as well be (recall a similar issue the lcd monitor price fixing case)