Was the HDD Crisis Fake?

Oldie

Oldie

Mean Old Administrator
Staff member
Joined
Jan 12, 2004
Messages
21,888
Interesting article on Softpedia. I wouldn't personally call it fake, but I'm definitely willing to believe they took advantage of the situation:

http://news.softpedia.com/news/HDD-...Western-Digital-Post-Big-Profits-266676.shtml

The Thailand flood came and went and we were left with the hard drive “crisis”. While the hard drives were almost never “out of stock” the prices increased even by 300%.

Months passed by, but there seemed to be no end to the hard drive crisis, despite the fact that both manufacturers were announcing the restoration of the plants affected by the waters.

In a report from earlier his year, we found out that Seagate even managed to increase its HDD shipments with around 2% when compared to the previous year. Where exactly was that “crisis?”
Click to expand...
 
I definitely think they took advantage of this, being the sellers or the drive manufacturers. The former increased their prices the following day the flooding occurred and the latter have been seeing significant profit increase.
 
Its cool, I bought SSD's instead. So really the joke is on them.
 
Time to sue.

BTW, is £100 a good price to pay for a 2TB Samsung?
 
Yes, it has been industry consolidation and price fixing that has kept prices up since a month or two after the flooding.

The market is anti-competitive as big players keep buying up other manufacturers.
 
I don't understand the excitement. Everything that has happened should have been easily predictable (and understandable) to anyone who knows anything about business and basic economics.

The flood damaged the production capabilities of Western Digital, and also drastically reduced the production capabilities of component manufacturers, particularly the manufacturers of motors used in HDDs. As a result, the number of HDDs that could be produced (by all manufacturers) fell significantly short of the quantity of HDDs that would be purchased by consumers if the prices of HDDs had stayed at their previous levels. So, the prices of HDDs went up by exactly the amount required in order to reduce the consumer demand enough that the reduced supply could meet demand. This is what is known as a supply shock.

What could have been done differently? Well, the first thing that springs to mind is that the HDD manufacturers and component manufacturers could have built their factories in less flood-prone areas, or could have preemptively built levees and walls around their factories. But obviously, they did not (perhaps unsurprisingly to students of human nature -- people are notoriously bad at choosing to spend money now to protect against something that might or might not cause problems in the future).

Alternatively, the manufacturers could have kept prices at their pre-flood levels. But then, their largest and quickest customers would have purchased their entire stock of HDDs, and sold them at whatever price the market would bear (i.e., the high prices we have seen), thus the distributors and retailers would be the ones with large profits, rather than the HDD manufacturers.

Or, the manufacturers, distributors, and retailers could have all kept prices at the pre-flood levels, and then there would be extreme shortages of HDDs. All the retailers would be limiting purchases of HDDs to customers, and keeping lists to make sure no one bought more than they were allowed to buy every month. Even so, there would be problems with people signing up on waiting lists to get the limited supply of HDDs, and probably people bribing the list-keepers in order to buy more than their share of the HDDs, so that they can take them and sell them on ebay at whatever price the market would bear (i.e., the high prices we have seen).

What other possibility is there besides shortages and rationing and black-markets, or higher prices? I'll take the higher prices, and the free markets operating as expected. If the prices are too high, I will not buy HDDs. Others will do the same. Eventually, as production capacity comes back on line, prices will fall in order to match the demand with the increased supply.

I suppose some may make the claim that HDD production capacity was not actually affected by the floods (perhaps this is what the article referenced is trying to say? it was rather incoherent and lacking any evidence or logical thought, so it is hard for me to say). But I have seen no evidence of a hoax. I suspect that some people do not realize that in a supply shock, prices can go up a lot if the price elasticity of demand is low. And for many HDD customers (not home users, but businesses and computer makers) the price elasticity of demand is fairly low. That's just the way it is. So home users need to either not buy that new HDD that they wanted, or they have to pay more for it. As the Rolling Stones said, you can't always get what you want.
 
WD was the most affected, not Seagate. Did WD say their capacity was 100% back to normal ? Only a little tension is needed to make the prices go way up.

techie81 said:
Its cool, I bought SSD's instead. So really the joke is on them.
Click to expand...

How many terabytes of SSDs did you buy ?

I need several TB per month, SSDs are not an option for storage. Anyway, their size is too small for me even if I could afford to buy dozens.
 
I'm thinking they had reason to raise the prices, but they also did milk it at the same time. Given they were in a temporary situation where they had no production going on they had to make their existing stock last as long as possible.

Though from my understanding it was not actually all manufacturing that was affected, only a certain percentage like 20% so really they could have just increased productivity at the other plants by making them run all night. Get the employees of the flooded plants to go over and take those shifts.
 
If I had to build 2TB of storage, it would cost me a lot more than the highest prices of hard drives.

2TB of data is worth about $150 to me.

Lots of different metrics to determine if a hard drive is worth the price.
 
techie81 said:
Its cool, I bought SSD's instead. So really the joke is on them.
Click to expand...

when you're like me and trying to price out 2 PB of storage the quotes you get back with the added margin because of 'the crisis' well you may find yourself contemplating assault and battery ... or maybe just battery.
 
To the OP: Not sure if it was "fake," but I agree with other posters that it was and is being taken advantage of. I saw the writing on the wall when the consolidation started. It makes me wish I purchased more 2TB before the flood :(
 
It wasn't fake, but the price was over-inflated. Like it said, nothing EVER went out of stock, which is BS if there was an actual shortage. It was just companies taking advantage of a disaster. I responded by not buying a mechanical drive since pre-tsunami, and I wont until 3TB is in the $100 range.
 
HeavensCloud said:
It wasn't fake, but the price was over-inflated. Like it said, nothing EVER went out of stock, which is BS if there was an actual shortage. It was just companies taking advantage of a disaster. I responded by not buying a mechanical drive since pre-tsunami, and I wont until 3TB is in the $100 range.
Click to expand...

When there is a shortage of oil, it isn't out of stock, production is just lower than demand, and the price adjusts. The HDD manufacturers managed the situation quite well, but after a few weeks a lot of shops had shortages, maybe you didn't notice since the price was unacceptable for you anyway.
 
The whole thing did seem very fishy. With so few companies in the HDD buisness now, it wouldn't exactly be hard for them to orcestrate this kind of thing.

f1n said:
Time to sue.

BTW, is £100 a good price to pay for a 2TB Samsung?
Click to expand...

A month or two before the "crisis" I paid less than that for 2x2TB Samsungs...
 
I'm prrretty sure those photos of the WD factory under water weren't fake. But the price hikes as warranted by parts supply shortages compared to the profits the HDD industry is making don't add up. Basically, they're raising prices above and beyond what would be justified to cover the additional cost of doing business.

Gotta admire the audacity of taking lemons and making $100 lemon meringue pies to sell...
 
QbRBI.jpg
 
If stock has returned to normal levels (yes, the flood happened) and prices still aren't down....there needs to be an investigation into price fixing ASAP.
 
That's what we call: Demand + Supply influenced by some "media propaganda" = $$$$ price hike = lots of "extra" profit for HDD manufacturers
 
JoeComp said:
I don't understand the excitement. Everything that has happened should have been easily predictable (and understandable) to anyone who knows anything about business and basic economics.

The flood damaged the production capabilities of Western Digital, and also drastically reduced the production capabilities of component manufacturers, particularly the manufacturers of motors used in HDDs. As a result, the number of HDDs that could be produced (by all manufacturers) fell significantly short of the quantity of HDDs that would be purchased by consumers if the prices of HDDs had stayed at their previous levels. So, the prices of HDDs went up by exactly the amount required in order to reduce the consumer demand enough that the reduced supply could meet demand. This is what is known as a supply shock.

What could have been done differently? Well, the first thing that springs to mind is that the HDD manufacturers and component manufacturers could have built their factories in less flood-prone areas, or could have preemptively built levees and walls around their factories. But obviously, they did not (perhaps unsurprisingly to students of human nature -- people are notoriously bad at choosing to spend money now to protect against something that might or might not cause problems in the future).

Alternatively, the manufacturers could have kept prices at their pre-flood levels. But then, their largest and quickest customers would have purchased their entire stock of HDDs, and sold them at whatever price the market would bear (i.e., the high prices we have seen), thus the distributors and retailers would be the ones with large profits, rather than the HDD manufacturers.

Or, the manufacturers, distributors, and retailers could have all kept prices at the pre-flood levels, and then there would be extreme shortages of HDDs. All the retailers would be limiting purchases of HDDs to customers, and keeping lists to make sure no one bought more than they were allowed to buy every month. Even so, there would be problems with people signing up on waiting lists to get the limited supply of HDDs, and probably people bribing the list-keepers in order to buy more than their share of the HDDs, so that they can take them and sell them on ebay at whatever price the market would bear (i.e., the high prices we have seen).

What other possibility is there besides shortages and rationing and black-markets, or higher prices? I'll take the higher prices, and the free markets operating as expected. If the prices are too high, I will not buy HDDs. Others will do the same. Eventually, as production capacity comes back on line, prices will fall in order to match the demand with the increased supply.

I suppose some may make the claim that HDD production capacity was not actually affected by the floods (perhaps this is what the article referenced is trying to say? it was rather incoherent and lacking any evidence or logical thought, so it is hard for me to say). But I have seen no evidence of a hoax. I suspect that some people do not realize that in a supply shock, prices can go up a lot if the price elasticity of demand is low. And for many HDD customers (not home users, but businesses and computer makers) the price elasticity of demand is fairly low. That's just the way it is. So home users need to either not buy that new HDD that they wanted, or they have to pay more for it. As the Rolling Stones said, you can't always get what you want.
Click to expand...

The long and the short of it is, this is the correct answer. Anyone whose taken some basic business classes knows this stuff. Some of the responses in this thread sound like wild conjecture and demanding more proof than is necessary. Basically it sounds like a conspiracy theory rather than level headed thinking.
 
Raudulfr said:
Notice how the tile says "Was the HDD [\SIZE="5"]Crisis[/SIZE] Fake?" and not "Was the [\SIZE="5"]Flood[/SIZE] Fake?


Yeah. Try again.
Click to expand...

Sorry for posting a topical picture that visitors to the thread may not have seen. Next time I'll check with you first, or consider the thread "tile" before posting.
 
We all know what happened with the floods last year...

But what's happening now?

Why are the prices still double what they were a year ago?
 
maxm said:
We all know what happened with the floods last year...

But what's happening now?

Why are the prices still double what they were a year ago?
Click to expand...

A very legit question. That is what I want to know was well. I could see a 25% increase over preflood prices as the "new norm" (shake ups tend to do that). However, this pattern of "WTF" is puzzling me as well. I was hopping, in the green category, 3TB's would be back to ~$125 by now and 2TB's would be ~$80. But...we are so far off from that.
 
JoeComp said:
I don't understand the excitement. Everything that has happened should have been easily predictable (and understandable) to anyone who knows anything about business and basic economics.

The flood damaged the production capabilities of Western Digital, and also drastically reduced the production capabilities of component manufacturers, particularly the manufacturers of motors used in HDDs. As a result, the number of HDDs that could be produced (by all manufacturers) fell significantly short of the quantity of HDDs that would be purchased by consumers if the prices of HDDs had stayed at their previous levels. So, the prices of HDDs went up by exactly the amount required in order to reduce the consumer demand enough that the reduced supply could meet demand. This is what is known as a supply shock.

What could have been done differently? Well, the first thing that springs to mind is that the HDD manufacturers and component manufacturers could have built their factories in less flood-prone areas, or could have preemptively built levees and walls around their factories. But obviously, they did not (perhaps unsurprisingly to students of human nature -- people are notoriously bad at choosing to spend money now to protect against something that might or might not cause problems in the future).

Alternatively, the manufacturers could have kept prices at their pre-flood levels. But then, their largest and quickest customers would have purchased their entire stock of HDDs, and sold them at whatever price the market would bear (i.e., the high prices we have seen), thus the distributors and retailers would be the ones with large profits, rather than the HDD manufacturers.

Or, the manufacturers, distributors, and retailers could have all kept prices at the pre-flood levels, and then there would be extreme shortages of HDDs. All the retailers would be limiting purchases of HDDs to customers, and keeping lists to make sure no one bought more than they were allowed to buy every month. Even so, there would be problems with people signing up on waiting lists to get the limited supply of HDDs, and probably people bribing the list-keepers in order to buy more than their share of the HDDs, so that they can take them and sell them on ebay at whatever price the market would bear (i.e., the high prices we have seen).

What other possibility is there besides shortages and rationing and black-markets, or higher prices? I'll take the higher prices, and the free markets operating as expected. If the prices are too high, I will not buy HDDs. Others will do the same. Eventually, as production capacity comes back on line, prices will fall in order to match the demand with the increased supply.

I suppose some may make the claim that HDD production capacity was not actually affected by the floods (perhaps this is what the article referenced is trying to say? it was rather incoherent and lacking any evidence or logical thought, so it is hard for me to say). But I have seen no evidence of a hoax. I suspect that some people do not realize that in a supply shock, prices can go up a lot if the price elasticity of demand is low. And for many HDD customers (not home users, but businesses and computer makers) the price elasticity of demand is fairly low. That's just the way it is. So home users need to either not buy that new HDD that they wanted, or they have to pay more for it. As the Rolling Stones said, you can't always get what you want.
Click to expand...

And now a year later...when some of those factories have been fully restored for 4 months now, and prices are still right at where they were. Besides how elastic are HDDs actually? You build a computer and you need an HDD almost all the time. You can jack prices up all the time and people will still buy even grudgingly.

This is what is called milking a cow for all it is worth.

http://www.knoxnews.com/news/2012/apr/17/thai-flooding-impact-on-tech-companies-suppliers/?print=1

Read some of the comments by these companies...some of the excuses are laughable. HP had a 7% drop in revenue, and it is all the floodings fault? Uh huh.
 
HeavensCloud said:
It wasn't fake, but the price was over-inflated. Like it said, nothing EVER went out of stock, which is BS if there was an actual shortage. It was just companies taking advantage of a disaster. I responded by not buying a mechanical drive since pre-tsunami, and I wont until 3TB is in the $100 range.
Click to expand...

Nothing ever went out of stock? Tell that to Lenovo who ran completely out of 7200rpm notebook drives. They had to start selling notebooks like the X220 with 5400rpm drives even though that had never been an option before.
 
bbordwell said:
Nothing ever went out of stock? Tell that to Lenovo who ran completely out of 7200rpm notebook drives. They had to start selling notebooks like the X220 with 5400rpm drives even though that had never been an option before.
Click to expand...

Did they "have to" because there were no drives at any price...or because Lenovo didn't want to start having to pay for bulk OEM HDDs with unicorn blood? I ask as I honestly don't know.

Consumer side, HDDs didn't go out of stock more than usualy IIRC. Can't speak for OEM.
 
Skripka said:
And now a year later...when some of those factories have been fully restored for 4 months now, and prices are still right at where they were. Besides how elastic are HDDs actually?
Click to expand...

I'm having a hard time responding because this comment makes no sense.

The equilibrium price reached which matches supply and demand, for a near-commodity product like HDDs, depends on all production. Total HDD production capability is probably just now about getting back to pre-flood levels, or perhaps has a little further to recover. But if prices went back to pre-flood levels now, demand would exceed supply since many people have put off HDD purchases, waiting for lower prices. So the equilibrium price is still expected to be higher than pre-flood levels.

As for price elasticity of demand, I already said it is fairly low for HDDs. I'm not sure what your point is, that you think it is even lower than I hinted at? A low price elasticity of demand means that it takes a large change in price in order to make a moderate change in demand. In other words, it fits perfectly with what we are seeing now.
 
JoeComp said:
I'm having a hard time responding because this comment makes no sense.

The equilibrium price reached which matches supply and demand, for a near-commodity product like HDDs, depends on all production. Total HDD production capability is probably just now about getting back to pre-flood levels, or perhaps has a little further to recover. But if prices went back to pre-flood levels now, demand would exceed supply since many people have put off HDD purchases, waiting for lower prices. So the equilibrium price is still expected to be higher than pre-flood levels.

As for price elasticity of demand, I already said it is fairly low for HDDs. I'm not sure what your point is, that you think it is even lower than I hinted at? A low price elasticity of demand means that it takes a large change in price in order to make a moderate change in demand. In other words, it fits perfectly with what we are seeing now.
Click to expand...

Catch being, I'll wager that the entire membership of Overclock.net, [H]ardforum, and EVGA buys fewer HDDs in a year than Dell or HP buy/install OEM in their prebuilt systems in a day. Even before the flood. If NewEgg and all the other retail channels could sell HDDs at cost, it still wouldn't effect supply that much because not many people buy HDDs in retail channels. It might effect the number of drives destined for retail channels, but I've not seen any HDD manufacturer yet confess the number of drives sold and allocated with respect to retail and OEM channels.

Consumer-side pricing doesn't matter that much, as the number of units sold is miniscule compared to what OEMs churn through. And who knows what OEMs are charged for HDDs. Lenovo had to switch to slower speed laptop drives, whether that was due to an actual shortage or because their OEM was charging unreasonable prices I don;t think anyone will ever know.

Retail side, everyone spiked prices out of a fear of scarcity, not necessarily actual scarcity. Same reason gas prices spiked over $4USD a few summers back, speculation and fear. Prices will stay high, as everyone has found out that people will still pay the higher prices and they'll still turn a profit.
 
Once again, your post makes no sense.

I already said that the price elasticity of demand for HDDs is low, and I said it was due to businesses and computer makers. You seem to be agreeing with my earlier post, while using language that makes it sound like you think you are disagreeing with me.

Also, you seem to have misunderstood my use of the word consumer. In talk of economics and supply and demand, consumer means someone who purchases a product. It does not mean a home user as opposed to a business (in that context) -- it includes both, and anyone else who buys.
 
supply vs demand. i know not everyone can, but ive put several large storage projects on hold until absolutely needed. with prices skyrocketed, people buy less or only the bare minimum. prices will drop when demand does. i think it will go down eventually. thats my .02
 
night_2004 said:
If stock has returned to normal levels (yes, the flood happened) and prices still aren't down....there needs to be an investigation into price fixing ASAP.
Click to expand...

Not necessarily. There is probably still a lot of pent-up demand in the market, so the factories would have to actually be running at higher than normal capacity to catch up and bring the prices back down.
 
The Thailand flood came and went and we were left with the hard drive “crisis”. While the hard drives were almost never “out of stock” the prices increased even by 300%.
Click to expand...
I don't know why the author of the article can't see BASIC supply and demand principles in his own two sentences here... Very few people are going to buy a HDD at 300% of the normal cost, which means that you aren't going to run out of stock. That author is saying that a basic effect of high prices of a commodity is criteria to call foul, when it really isn't a valid argument.

Despite me saying this, yes, I believe, (though am not stating as fact or citing any evidence) that of course the HDD manufacturers are milking the event for whatever they can, that is just business.. There are still people who have absolutely needed to purchase HDDs maybe even at a loss in order to fulfill contracts, OEMs, etc... and they have paid a premium during this time.

In a way, its very similar to the high profits of oil and gas production... you can only produce and import so much oil.... yet people absolutely need gasoline and oil to function... if there is high demand and not enough supply, you have no option but to raise prices to limit the demand. It is a function of a finite resource with high demand... It doesn't do any good to be mad at the gas companies for making a high profit margin, because they almost have no other choice.... (whether we should tax them more is a completely different story in my opinion.)

Ok so thats my 2 cents..
 
all of you mentioning supply vs demand are aware that both seagate and WD shipped more units in 2011 than 2010 right?

more units shipped, much higher profit. i for one am not amused.
 
madrebel said:
all of you mentioning supply vs demand are aware that both seagate and WD shipped more units in 2011 than 2010 right?
Click to expand...

You seem to be unaware that the flooding hit in late October of 2011, so it only had an effect for about 1/6 of the year. And even then, it did not knock production down by 17% for the year, since there was still some production going on at some HDD factories. A reasonable guess is that production would have been 5-10% higher for the year without the floods.

If you want to make a reasonable comparison, you should compare the production of HDDs for the three (or six) months starting Nov 1, 2011, to the three (or six) months starting Nov 1, 2010. You'll also need to make a guess at the average increase in production per year in order to try to estimate how much the flood reduced potential production.
 
You must log in or register to reply here.
Back
Top