Recently, there’s been much ado about the flooding in Thailand in the tech world. Not because lots of people are dying and millions homeless, but because hard drive prices are rising.
About 40% of the world’s mechanical hard drive production capacity is located in Thailand, and since the land there has suddenly decided things really are better under the sea, most of it has ground to a halt.
No one can predict the exact impact this will have on production for the rest of 2011 because no one knows exactly when flood waters will recede, but it is looking more likely with each passing day that Thailand production will be crippled into early 2012. Even when the flood recedes, it will take some time to repair damaged facilities, a task that is going to be further hampered by the widespread local damage. Basic services like electricity, clean water and open roadways will be hard to come by.
According to Seagate’s latest SEC filing, the company believes total industry shipments for Q4 2011 will drop from an expected 180 million to 120 million or less. That means supply will be hampered by over 30%.
Hard drive prices have already risen – that’s a past event. The question many are now asking is what impact this will have on laptop prices rising over the next six months. ASUS has publically warned that current hard drive inventory is good only until the end of November. This statement probably does not mean that ASUS will have no more hard drives after that point, but it does mean that after November the company will have to pay higher prices for new drives.
This, in turn, will translate to higher prices for laptops. Again, the impact is hard to predict, and will largely depend on remaining supply. We’ve already seen the online retail consumer market take a huge hit, with some drives more than doubling in price. I believe this is due to huge HDD orders from the big vendors which have taken a lot of product out of the consumer market. There are some reports that even the large manufactures are now having trouble filling the orders they place – and have to do so at higher prices than before.
I think it is likely that a small increase in average pricing – about $20 – will take place. A hard drive is not a large part of the overall cost of building any computer, and that goes double for laptops, which often use cheap 500GB drives with low spindle speeds. However, the profit margins on laptops are not large. That’s the reason why HP’s now ousted CEO wanted to get rid of the company’s laptop division. In addition, small cost bumps add up over time. If the price of a 500GB hard drive went up by $10 for HP, and they build a million computers, you’re looking at 10 million dollars. And HP builds a lot more than a million computers, so that adds up to real money.
Although a small price increase like this would be notable for industry analysts, consumers probably wouldn’t much care. It’s even possible that a price increase like this could be compensated for in other ways. Manufacturers might keep prices the same, but slightly de-content laptops at a given price point to make up for the higher hard drive prices. We might see a computer that used to have a 2.3 GHz Core i5 drop down to a 2.1 GHz model without a price reduction, for example.
The worst case scenario is a situation where the supply has become so tight that manufacturers simply can’t find enough drives to put into the systems demanded. To compensate, more computers will be offered with solid state drives, but those are also more expensive than their mechanical counterparts. If a situation like this occurs, laptop prices could rise $50 or $100 on average. Alternatively, we might see significant de-contenting – drops from Core i5 to i3 processors at the $600 price point could occur.
I am skeptical that this worst-case scenario will occur because there will be great incentive for companies to put production back online or increase production at the plants that still are operating. Still, it can’t be entirely discounted as possible.
My advice? If you were thinking of buying a laptop this holiday season, do it, and sooner rather than later. Although laptop prices may not rise, they certainly won’t go down. In addition, Intel’s new processor line is not expected until May/April 2011, so you won’t be missing out on any new technology that’s right on the verge of being unleashed.