Seagate and Western Digital now own more than 85% of the HDD market and are seemingly in a complete agreement to artificially raise worldwide HDD prices.
There are many uninformed readers that have no idea of how the HDD industry has worked for the last decade, but we believe there’s quite a bit of information available here and especially here and in the two links above.
For more than a decade, the HDD industry was plagued by over production. HDD manufacturers struggled to keep costs low so that they could successfully compete on the market.
Sure, a 45 dollar 1TB HDD is quite cheap and the manufacturer was struggling with 19% overall margins, but artificially increasing the price to 200 dollars is a clear rip-off.
As end user prices were very low, manufacturers had to ensure low costs from their own HDD parts suppliers.
To make sure they had low prices, all HDD manufacturers were placing huge orders for HDD components, as the bigger the quantity ordered the deeper the discount.
HDD makers were ordering HDD parts and building drives despite lower demand because that was the only way they could kept the manufacturing costs low enough to compete in the market.
And thus there was overproduction.
A hard disk drive manufactured in January 2011 had a big chance to be sold in March the next year.
The stocks were so high that 1TB disks were discounted for even 40 dollars a drive.
After WD bought Hitachi HDD plants and Seagate got Samsung’s HDD division, the companies were preparing a global price settlement.
Prices went up very slow at first, but the catastrophic Thailand flooding gave them a pretext to suddenly triple the prices despite having huge stocks of drives manufactured in the previous 18 months.
Those drives that were likely manufactured for less than 40 dollars ended up selling for around 160 USD and sometimes even more.
Here are some charts describing the way prices evolved in the past months.
We would like you to pay attention to the net income statements:
2011 : “The company reported a gross margin of 19.1% and a net income of $93 million with diluted earnings per share of $0.21.”
2012 : “The company reported a gross margin of 37% and a net income of $1.1 billion with diluted earnings per share of $2.48.”
That’s an approximated net income increase of over 1182 percent.
The theory with “higher demand usually raises prices” doesn’t hold water here.
When a limited-edition luxury car is announced and orders are placed with deliveries slated for the next two years, the price doesn’t go up to ten billion a piece just because there is greater demand than the number of cars manufactured.
On the other hand, if this analogy is too different from the HDD industry, let’s put it another way.
You can’t increase prices on something that is not available. There is much greater demand for Nvidia’s Kepler cards, but you don’t see neither Nvidia nor its resellers putting 3000 USD prices for GTX 690 cards just because those are not yet available.
But hard disk drives really were available when the floods hit, stocks were huge.
Usually people preorder if something is highly desired and the wait period is limited to a couple of days.
Only in a price-fixing scheme can the prices be jacked up by 300% in a single day.
Big OEMs like HP, DELL or Acer and big channel resellers jumped and placed huge orders to ensure some "discounts" and availability in the following weeks.
Their huge orders really created a slight shortage of about 3-4 percent that mostly impacted end-users and online retail shops.
On the distribution channel, the HDDs were always available and smaller resellers were blackmailed into accepting huge prices despite strong protests.
The attitude of the regional distributors was :
"You buy them at these prices! You see the "Out of Stock!" sign on the online shops?
Those are "Out of Stock" so that we can make them available for you. If you don't want them, we'll ship the merchandise there."
The two companies now ruling the HDD market are buying back their own shares at the current market price because they know business ahead will be very good.
Seagate initially announced they were putting up $2.5 billion dollars to buy back the company’s shares and then Western Digital allocated more than $2 billion dollars in an identical move.
The authorities are quite defying in their lack of action as we are currently being robbed and the competition on the 3.5” HDD market is basically nonexistent.
Sure, there will be an inquiry about price fixing in the next five years, but by then we will have been robbed over and over again while the companies will simply make some lawyers very rich and pay a settlement to the state.
Buying SSD and using optical media as a data backup and storage solution seems to be the only option right now for the end-user.