October 21st, 2011 by Brian Beeler
Who Stands to Gain From Hard Drive Shortage?
If we've learned anything after Western Digital and Seagate's quarterly conference calls this week, it's that the hard drive industry is going to be pretty "volatile," as both companies say - or layman's terms, a cluster$%@* - over the next 6-9 months. Flooding in Thailand has caused severe issues for both companies, but WD's heavy exposure to not only Thailand, but specifically the heavily flooded region, is causing them an extra level of pain. Regardless of which company hurts more, the industry at large is going to suffer, with forecasted drive supplies for the current quarter only reaching 62-76 million units from WD and Seagate out of projected demand of 170-180 million units.
While Seagate and WD aren't the only hard drive manufacturers, they make up the bulk of the business. We have less visibility into Hitachi, Samsung and Toshiba's situations, but they're all experiencing interruptions and Toshiba's drive plant is reported to be flooded. Even when, in Seagate's case, their Thailand factories are dry and operational all of the manufacturers are suffering from supply chain problems as many of the suppliers have suspended operations.
There's little doubt that side effects of the flooding will be felt almost immediately. Neither WD nor Seagate keeps deep inventories of drives, in fact, by now there's probably very little in reserve by either. That means, whatever is being produced today is probably already sold, with inventory buildup not expected to occur until the summer of next year.
How this impacts the consumer and enterprise remains to be seen. OEMs like Dell, HP, Lenovo and others are surely nervous about their ability to sell computers. Data centers who are expanding storage may have to wait to add capacity. And end users will likely see a price spike at retail as everyone struggles to come to grips with the supply problem.
All of this turmoil leads to an interesting question though: who stands to benefit from this mess? Analyst firm Sterne Agee came out after the WD report and said OCZ is going to see a bump in sales due to the lack of HDD supply. Taken with a grain of salt, Sterne Agee covers OCZ and has a buy rating on the stock, their point may still be valid. Is there a possibility that the HDD supply problems could cause buyers to go to SSDs as an alternative?
It's not exactly an apples to apples storage decision. Someone looking for a 1TB notebook drive for $120 isn't going to all of a sudden opt for a $1000+ SSD of equal capacity. The enterprise at large isn't going to cancel their orders of hard drives for mass storage and jam SSDs in their servers. That said, as hard drive prices go up and supply is harder to find, anyone who's been on the fence about testing SSDs in the enterprise or thinking about buying a new laptop with an SSD, might find this problem to be the nudge they need to go solid state.
The Thailand situation is in fact volatile and listening to the CEO's from WD and Seagate, it's clear they're frustrated at not being able to give more definitive answers to the issues at hand. But the reality is, HDD supply will at best only be able to meet half the demand in the current quarter, with marginal improvement in the first quarter of next year. SSDs in general could see a dramatic uptick in acceptance, especially as prices continue to fall. While OCZ may gain due to their strong enterprise exposure, other vendors like Micron, Intel and even Seagate could benefit from any extra uptick in SSD sales.
StorageReview.com will continue to monitor the situation and report on hard drive supply issues as more information becomes available.