Time to buy traditional hard drives for Q4 2011?
I generally tell folks to purchase the hard drive capacity they need for data, redundancy and hot spares taking into account their storage growth over the next 12-18 months. In some situations, such as when one is working with large RAID 6 arrays or ZFS-based systems, you need to carefully plan how and when you add capacity to storage systems.
One thing a lot of users may not know is that a very high portion of hard drives (from Western Digital), and individual components therein are made in Thailand. Moving manufacturing to low-cost areas has helped keep the cost of drives down over the past few years, something we have all enjoyed benefits from. With that being said, Thailand is stuck under flood waters at the moment.
I didn’t get to sit on the Western Digital Earnings call, but I did read the transcript thereof. It seems like they have already lost a week of production from the facility. Some equipment was moved to the top floor of the site, but the bottom floor is now flooded and equipment on that bottom floor is ruined. When flood waters recede, they will need to clean up, move equipment to the bottom floor again and replace/ fix damage equipment.
WD is looking at significant issues in the coming quarter because of this constraint. Management will have to honor contracts it has with major OEMs, and will likely have higher operational and capital expenditures this quarter (and possibly a few subsequent) due to the damage to their facilities and those of their partners. With margin recovery unlikely through units sold on long term supply contracts WD will need to have higher prices outside of those contracts. Interestingly enough, average selling prices rose $2 from the June quarter for Western Digital so it is possible to move pricing in the hard drive market.
One other note is that Seagate-Samsung cleared another antitrust hurdle this week in the EU, so it is conceivable that Seagate-Samsung could close before WD-Hitachi and coming out of the constrained manufacturing situation, WD would be facing a much larger combined rival.
Bottom line, make of it what you will, but there is a good chance that Western Digital drives will not be found as inexpensively in retail and online outlets over the next few months. If you are thinking of purchasing a few drives (WD drives in particular) in the next 30 days, do not be shocked if prices rise sharply.