Understanding enterprise HDD price complexity

HDD (Hard Disk Drive)

End-users continue to be hard hit as enterprise Original Equipment Manufacturers (OEMs) such as HP, Cisco and IBM follow Dell in increasing prices for enterprise hard disk drives. Many corporate buyers have had to settle for smaller capacity drives or delay purchases for their datacentres in order to keep spending in line with budgets set at the start of the year when prices were more stable.

The flooding in Thailand finally started to take its toll on enterprise OEMs as unit sales fell by almost -55 percent in the first week of January 2012 to come in at a two-year low. Earlier in the crisis CONTEXT had correctly predicted that healthy pre-flooding OEM stock levels would provide a short-term buffer and sales would not drop immediately.

Dell’s stock positions have always been tightly managed and as a result they were the first to show the effect of shortages by increasing list prices by +3.7 percent as far back as October, looking at drives that have been in supply since prior to the flooding (i.e. excluding end-of-line or new products). Since then they have raised prices by 5.9 percent as of the first week of January. Other vendors such as HP, EMC, IBM and Cisco have all since followed suit and the price increases have especially affected larger capacity drives.

Compared to the month before, HP’s list prices were up +4.3 percent on average at the beginning of December. Much higher increases were applied on the 2TB (+9.2 percent) and 3TB (+17.4 percent) SAS interfaced products.

Despite IBM reducing prices in October by -0.7 percent, they have since increased them by +5.8 percent. Unsurprisingly, the 1TB, 2TB and 3TB drives all grew in price by over +9.7 percent over the two months following.

Cisco reacted even later than HP: as list prices rose by +4.9 percent in the first 2 weeks of December alone. As expected, it was the terabyte drives that saw most increase, for example a 1TB HDD went up by +31.3 percent (1TB SAS 7.2K RPM SFF DD/hotplug/drivesled).

Although EMC’s list prices have remained unchanged between the first weeks of October and December, they look set to increase them by up to +15 percent across all business lines over the course of Q1 2012 relative to the previous three months.

Over the last nine weeks since to the flooding, OEM unit sale run rates through distribution declined by a mere -12 percent, taking a rolling three week average between weeks 51 and week one of 2012. In comparison, from the channel and manufacturers’ viewpoints, the same period saw unit sales decline by -72 percent, although at a decelerating rate as production progressively resumed.

Interestingly, despite the continuous fall in unit sales, the average price/gigabyte has started to drop in parallel. This strongly suggests that prices had been artificially increased straight after the flooding as distributors looked to capitalise on the period following the week in which the prospect of shortages had come to light. However once manufacturers had announced that the recovery of supply had begun, prices in the channel did begin to fall.

The time lag in the price difference between manufacturers and OEMs has gradually widened, and is expected to do so over the next few weeks. In the aftermath of the flooding, the time lag between the two was two weeks due to a massive outburst of panic buying – week 41 for manufacturers was linked to week 43 for OEMs. It is now standing at around seven weeks.

Although the recent past has brought about much debate on whether HDD manufacturers favour selling to OEMs over the channel, this increasing lag time could be evidence that manufacturers have applied different supply policies to OEMs compared to the channel.

Although the list prices of Dell’s enterprise HDDs have risen, those that are sold with EqualLogic configured disk systems have already seen a fall in list prices of -7.8 percent on average between December and January. A similar trend for all the other OEM vendors only looks inevitable, if trends in the past few weeks continue.

Prices in the next few months are very hard to predict as they will continue to be affected by the uncertain net effects of these key factors as well as the continued fulfilment of unsatisfied demand at various price points.


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