Hard-Drive Shortage Hits Enterprise Drive Shipments Hard

Hard-drive shortage updates from Seagate, Western Digital and EMC confirmed reports from solution providers that large storage vendors have greater access to supplies than smaller vendors.

Solution providers and storage vendors also noted that enterprise hard drive supplies are more constrained than desktop drive supplies.

The hard-drive shortage stems from severe floods in Thailand that wiped out nearly one-third of the world's hard-drive manufacturing capacity.

In the wake of the flood, NetApp, Hitachi Data Systems and EMC all recently unveiled plans to raise hard-drive prices by up to 15 percent this quarter.

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Seagate Tuesday reported its second fiscal quarter 2012 revenue and profit and said that for the quarter it shipped a total of 47 million hard drives, down 4 percent compared to the same period last year. The 47 million drives included 700,000 that were shipped by Samsung in December after Seagate closed its acquisition of Samsung's hard-drive business.

Of that total, 6.4 million were enterprise-class drives, including 4.3 million drives for mission-critical server and storage applications and 2.1 million drives for business-critical applications. This was down about 10 percent vs. the 7.1 million enterprise drives Seagate shipped in the same period last year, which included 4.8 million drives for mission-critical server and storage applications and 2.3 million drives for business-critical applications.

Seagate, however, shipped 37.7 million desktop and mobile drives in the second fiscal quarter of 2012, up nearly 20 percent from 31.5 million client drives shipped a year ago.

Seagate's shortfall resulting from the Thailand floods was rather limited, as the company's relatively few assembly lines there were not as impacted. The company therefore suffered mainly from a shortage of components from flooded parts makers.

Contrast that to Western Digital, where Thailand facilities accounted for the production of about 60 percent of its total hard-drive production. Western Digital's Thailand production was abruptly halted due to the floods and is only now starting to ramp back up.

Western Digital President and CEO John Coyne said during his company's second fiscal quarter 2012 financial conference call last week that he does not expect production for the entire industry to return to normal until sometime in mid-2013, according to a transcript of his presentation at the Seeking Alpha Web site.

Western Digital CFO Wolfgang Nickl said on the call that the company shipped a total of 28.5 million hard drives during the second fiscal quarter of 2012 vs. 52.2 million drives in the year-ago quarter. Of those shipped in the last quarter, more than 3 million units were manufactured in the prior quarter.

Average selling price for Western Digital drives was approximately $69 per unit, up $22 from the year-ago quarter, Nickl said. OEM sales accounted for 59 percent of total revenue, up from 45 percent from last year, while distribution channel sales accounted for 25 percent of revenue, down from 33 percent last year. That indicates a heavier emphasis on OEM storage and server customers than in the past.

Joe Tucci, EMC chairman and CEO, said last week during EMC's fiscal year 2012 financial conference call that the Thailand floods have had a major impact on the disk drive industry, and that enterprise drives were more impacted than desktop drives.

NEXT: Enterprise Drive Constraints Mean Price Increases

"We expect there to be drive availability constraints throughout 2012, and we expect these constraints to apply more to nearline drives than to mission-critical drives," Tucci said. "There is potential for availability to improve for the second half of 2012, and given our strong relationship with the major drive vendors, we at EMC expect to be relatively better positioned."

Solution providers, including those that work with major storage vendors and those that build custom systems, said they are feeling a much larger impact from the shortage of enterprise drives than desktop drives.

Enterprise drives are very challenging to get, said Todd Swank, vice president of marketing at Nor-Tech, a Burnsville, Minn.-based custom system builder. "Everything we're hearing from our suppliers points to the shortage continuing through the rest of this year," Swank said.

Desktop hard drives are more readily available than enterprise drives, but are still higher in price than before the flood, Swank said.

"We expect drive shipments to get close to normal by Q3 or Q4," he said. "But we don't expect drive prices to get back to pre-flood levels unless some new technology comes in. There are only two major vendors now, so don't expect them to want prices to fall too soon."

The smaller, high-speed enterprise drives are especially hard to get, said Dhruv Gulati, executive vice president at Lilien Systems, a Larkspur, Calif.-based solution provider and longtime Hewlett-Packard partner.

"We're seeing longer lead times, from between two to six weeks," Gulati said. "Customers understand the delay. Once the Thailand floods were in the news, it was not hard to convince [customers] this is a real shortage."

One HP solution provider who did not want to be named said constraints on drive shipments are slowing down storage and server shipments.

"We're telling customers, 'Order sooner than later,' " the solution provider said. "Some things we can ship right way, while others take time. But no one is saying they can't ship at all."

The solution provider said discounts to customers have so far been maintained. "But when we go for pricing, we have to understand the possibility that we may not be able to be as aggressive as in the past. There are a lot of factors to consider, including the fact that the top customers might get their drives before everybody else. Someone buying 5,000 servers will probably get a higher priority than someone ordering 10 servers."

Joe Kadlec, vice president and senior partner at Consiliant Technologies, an Irvine, Calif.-based solution provider whose top vendor partner is Hitachi Data Systems, said that while hard-drive prices have gone up between 8 percent and 15 percent since the fall, there has been little impact on storage shipment sales.

HDS is still honoring old prices on existing quotes through mid-February, Kadlec said. "But in the end, disk prices are just a subset of the total price for a Hitachi VSP or AMS storage system," he said.