Thailand Floods Raise Havoc On Hard Drive Business As Customers Scramble For Supplies


 

One system builder, who requested to remain anonymous, said Seagate told his company that tier-one storage vendors will be getting priority shipments, and that pricing will continue to rise. For instance, the system builder said, a 500-GB Seagate desktop hard drive that was priced to the channel at $37 a week ago was now priced at $51.

Another system builder, Andy Kretzer, director of sales and marketing at Fremont, Calif.-based Bold Data Technology, said that it is getting hard to find suppliers who will sell hard drives.

"No one knows how bad it will be," Kretzer said. "Some people are saying the situation could last two to three quarters. People with inventory are holding it."

That includes the distributors, Kretzer said. "Distributors seem reluctant to let go of the inventory they have," he said.

Kretzer said he got a quote from a server supplier on Wednesday for servers with Western Digital and Seagate drives, but that the supplier on Thursday called back with a new quote that raised the hard drive prices by over 10 percent.

Erik Stromquist, COO of CTL, a Portland, Ore.-based system builder said that his vendors are coaching his company to hurry and place larger orders than normal.

"So internally, we decided to take an even larger position on orders than normal," Stromquist said. "We're taking a 4X position (compared to previous orders)."

Distributors are declining to talk on the record about inventory or expectations from their hard drive suppliers. In response to requests for more information, a number of distributors e-mailed prepared statements to CRN which seem to indicate that allocation is in progress.

A top executive of one distributor, who requested anonymity, told CRN that when prices go up in situations such as hard drive shortages in the wake of the Thailand flooding, products will go on allocation.

That allocation stems from a need to ensure existing stocks don't dry up as a result of shipments to a few buyers, the executive said. "Everyone is in a cautious state of mind. No one wants to liquidate inventories even though they could sell all their hard drives quickly."

That executive said the distributor is already seeing 1-TB Western Digital hard drive prices jump 20 percent, and that Western Digital is not committing to replenish its hard drive channels.

Prices for drives already in the channel have risen because Western Digital has eliminated all its special pricing programs, the executive said. "They even used the force majeure clauses in their contracts," the executive said, referring to a clause that frees the parties in a contract from legal liability in case of circumstances beyond their control.

Seagate has also said it is raising its prices Monday, the executive said.

The executive has been in touch with PC vendors, but has seen no panic from them yet. "But if this situation lasts for more than one quarter, it could impact the PC business," the executive said. "For the notebook business, more manufacturers make the 2.5-inch hard drives. Fewer make the 3.5-inch hard drives that go into desktops and servers."

The worst case scenario is that the shortage of hard drives lasts long enough to where manufacturers of other products such as motherboards and memory cannot ship products because system builders can't fulfill orders from a lack of hard drives, the executive said.

Next: Distributors Talk Allocation Without Saying "Allocation"