Disk Drive Shipments To Dive 30 Percent in Q4

December 5, 2011 Timothy Prickett Morgan

Fears that the catastrophic flooding in Thailand that has killed hundreds of people and dislocated millions more would have a dramatic impact on the hard disk drive business are apparently going to be realized. The looming disk drive shortage is already driving up raw disk and PC prices and it won’t be long before server prices start rising, too.

This tragic situation, like the earthquake and tsunami in Japan back in March, demonstrates the need to diversify the IT supply chain and second- or third-source parts despite our tendency to want to ramp up volumes at a limited number of suppliers and lower prices. About a quarter of the world’s disk drive manufacturing facilities are located in the Thai flood zones, with Western Digital and Toshiba being the hardest hit.

Chip and storage tracker iSuppli said in a recent report that it believes global disk drive shipments will only hit 125 million in the fourth quarter, down 28.6 percent from the 175 million units shipped in Q3. The disk drive shipments could be as low as during the third quarter of 2008, which was the trough of the Great Recession. Western Digital is expecting its revenues to be cut in half in the fourth quarter–between $1.05 billion and $1.25 billion, with a $270 million loss–and Toshiba says it anticipates a loss. The good news for Power Systems customers is that the disk drive shipment drop off is affecting PC and laptop drives more right now than server disks, and Seagate Technology‘s factories in Thailand have escaped the flooding. Seagate and Hitachi are the two main suppliers of server disks in the world.

Seagate told Wall Street last week that it estimated that the industry would only be able to ship 110 million to 120 million disk drives in the fourth quarter, and said further that it expected that all disk makers would be optimizing their production by making drives that have the fewest components and/or the lowest capacity. The cost of fatter drives is lower on a per-capacity basis, so in effect, disk makers will be trying to wring more revenue out of customers in 2012 by shipping skinnier drives that cost more inherently and then cost yet more again because of shortages in supplies. The revenues at disk makers will hold up better than you might expect, and you will be paying more for disk storage than you would like.

If you are pricing up a new system, as we have been explaining for a few weeks, it might be a good time to switch to flash storage, which might cost more but has ridiculously higher I/O capacity than hard disks. There might never be a better time to talk the CFO into a flashy Power Systems machine with disk prices on the rise. Especially if IBM is not as generous with the discounts off list price for disks even if it doesn’t increase list prices.