Home > General > Prices of Solid State Fall While EMC and HP Raise Theirs

Prices of Solid State Fall While EMC and HP Raise Theirs

I really didn’t like economics in college. It wasn’t the formulas or the theories behind the free market enterprise, it was I knew people could cheat the system and make more money based on certain events.  Those people are able to work the system to put more money in their pockets at the expense of others.  The ‘others’ recently have been people who are buying storage.

The floods in Thailand caused the price of hard drives to spike 70% between 10/1/2011 and 12/1/2011.  Manufactures claimed their production lines were flooded and could not operate.  The first question that came to mind is why you have a factory that builds electronics in a flood zone. The next was did all of the hard drive manufactures get flooded?

Western Digital was hit the hardest by the flooding.  Their inventory levels dropped by 90% in less than a week according to Kristopher Kubicki, Dynamite Data, “The first flooding was October 8 and within a week, two weeks at the most, almost all that inventory at distribution had dried up”.  “I’m not sure if that was distributors getting the inventory recalled from them or if it was getting purchased that fast.  I think consciously people moved it out of distribution and into system manufactures.”

Not every hard drive manufacture was hit as hard as WD but decided to raise their price to meet the market conditions.  Back in 1985 there was 60 hard drive manufacturers in the world and today only 7 remain in a fast pace, low margin market.  Of those seven, WD only has about 14% of the market behind Seagate (34%) and Maxtor (23%).

The two worst areas that were hit we the Bang Pa-in Industrial Park and the Navanakorn Industrial Park.  These plants produce about 60% of the 54 million hard drives WD shipped in the second quarter of 2011.  Seagate was not flooded directly but did get hit with supply chain problems.

Operations now are coming back online or alternate sites are beginning to catch up on the product levels and the market is seeing more drives being shipped from Singapore.  One interesting fact we are now seeing is the price of solid state drives have dropped at a dramatic pace.  According to Idealo, the average SSD price per GB has declined five times more quickly than before the devastating floods that hit in October.

Sales of SSDs through the distribution channel in Western Europe have risen by 56% according to Vice President of Enterprise research at Context, Alexandre Mesguich.  He further states despite the uptick in SSD sales, the technology is still too expensive for many (consumers).

That factor has changed dramatically; in 2007 SSD drives were about 120 X more expensive than spinning drives.  Today, the difference is ONLY 32 X.  The average price for a HDD per GB was about $0.075 and SSD was about $2.42 per GB according to the monitoring firm Pingdom.

This trend is set to continue SSD prices likely to follow HDD ones in a plummet, likely helped by the shortage of HDDs on the maket.  According to the chart, SSDs are currently the same on a per GB level as the HDD prices of 2002.  This suggests we’re only a few years away from having an affordable price alternative to HDD.

Pingdom also predicts that in 2012 the average price for HDDs will all to $0.54/GB, a drop of around 28%. SSD prices should drop to $1/GB which is a significant 33% price drop from this years pricing.

Paul Grimshaw, head tech at Uxbridge-based IT firm Totally Techy says the interest in SSD is rising amongst business users.  “Most consumers are sticking with HDD but businesses are taking it more seriously as they tend to have less data stored on their computers and can get smaller drives for good prices.”

In the retail market we are already seeing a price drop in spinning drives but just in a few.  I suspect most of the drives that are effected are going to be for notebook and desktop PCs and not the enterprise storage systems.

Which is why I don’t understand why both EMC and HP have already announced their intention of increasing the prices on storage systems for 2012?  EMC claimed they have been bearing the brunt of the price increase all these months but was forced to increase the price to compensate for the price rise until now.

“To date EMC has absorbed the price increases passed on to us by our hard-disk drive suppliers and we will continue to do so through the end of the month. However, beginning in Q1 2012 we will be increasing hard-disk drive list prices from five percent up to 15 percent for an indefinite period of time.”, EMC said, ZDNet reports.

HP is not saying when it will increase their prices but did talk about their suppliers had increased their prices by almost 20%.

Now the question of Econ101 comes up.  If the prices of SSDs are coming down and the price of HDDs will come down as soon as the production lines come back full strength, why would large companies go ahead and raise prices?  Why not find alternate suppliers or a change in technology? Are the hard drive manufactures trying to cover the cost they incurring to bring new production online and therefore charging more for their parts?

I am sure its much more complicated than what I learned at a engineering school basic economics class.  I can’t help to think this is how the new world works and why smaller companies aren’t able to compete anymore.  Instead of going out and finding better deals or even waiting out the high water mark, companies just raise their prices.  What will happen when the prices of HDDs and SSDs fall even more?  Will big EMC and HP come out with press release stating they are lowering their prices?


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