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HDD prices to remain high

Analysts say prices are not expected to return to pre-flood levels until 2014

HDD prices to remain high
HDD manufacturers now have greater pricing power than they did in 2011, says IHS.

Although production of hard disk drives (HDDs) is rapidly recovering from the catastrophic Thailand floods that occurred in October 2011, HDD average selling prices (ASPs) are not expected to decline to pre-disaster levels until 2014, according to an IHS iSuppli Memory & Storage Market Brief report at information and analytics firm HIS.

In the wake of the floods, the ASP for the entire HDD market soared to $66 in the Q4 of 2011, up 28% from $51 in the third quarter. The ASP held steady at $66 in Q1 2012, and is expected to decline marginally to $65 in Q2.

Meanwhile, after flooding caused a 29% plunge in shipments in the last quarter of 2011, HDD production is rising and will recover completely by the third quarter.

Shipments rose by 18% to 145 million in the Q1 and by 10% to 159 million in the second quarter.

In Q3, 2011, shipments are expected to rise by another 10% to 176 million. This will mark the first time in 2012 that shipments will exceed their 2011 quarterly levels, up from 173 million in the third quarter of 2011.

Despite exceeding pre-flood shipment levels in the third quarter, pricing is expected to remain inflated.

"HDD manufacturers now have greater pricing power than they did in 2011, allowing them to keep ASPs steady," said Fang Zhang, analyst for storage systems at IHS. "With the two mega-mergers between Seagate/Samsung and Western Digital/Hitachi GST, the two top suppliers held 85% of the HDD market share in Q1 2012. This was up from 62% in the third quarter of 2011, before the mergers. The concentration of market share has resulted in an oligarchy where the top players can control pricing and are able to keep ASPs at a relatively high level."

Owing to concerns over HDD availability, an increasing number of PC original equipment manufacturers (OEMs) in the second quarter have signed long-term agreements (LTAs) with HDD makers. These LTAs provide shipment guarantees, but lock in pricing that is approximately 20 percent higher than pre-flood levels.

Even if all the OEMs stop entering into LTAs by the end of 2012, it would take about four quarters with a 6% sequential decline in the HDD ASP to reach the pre-flood pricing level. However, given that there have been no consecutive 6% sequential quarterly declines during the past three years, the likelihood is remote that this would happen now and that HDD pricing will decline accordingly.

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