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Hard Drive Prices and Profit Margins Rise

Prices for hard-disk drives (HDD) from Seagate and Western Digital surged in the fourth quarter of 2012, due in part to flooding in Thailand that halted production of drives and components used in drives.

The flooding resulted in drive shortages and drove up prices as well as the gross profit margins of drive manufacturers, according to researcher IHS.

Seagate, the top HDD manufacturer in the fourth quarter, increased its gross margins 32 percent. Its long-range goal had been to boost its margin to 25 percent, IHS reported. The average price for Seagate drives in the fourth quarter increased 24 percent to $68 compared to $55 in the third-quarter. The average price for a Western Digital drive increased from $46 in the third quarter to $69 in the fourth quarter, a 32.5 percent rise. As a result, its gross profit margin rose to a record 32.5 percent, according to IHS.

The good news for buyers is that HDD tags for some drives will start to decline at the end of the first quarter as production increases. However, the bad news is prices will not return to pre-flood levels anytime soon because of industry consolidation, IHS reported. There will be fewer competitors after Seagate completes its acquisition of Samsung's drive business and Western Digital buys out Hitachi GST.

Prices will also be impacted by the relocation of HDD production following the flood, increased component costs from manufacturers affected by the disaster, and the increased costs of developing high-technology drives.

While prices and margins increased for Seagate's and Western Digital, unit shipments declined in the fourth quarter, according to IHS.

Seagate’s shipments declined 8 percent in the fourth quarter compared to the third, while Western Digital's shipments plummeted 51 percent from the third to the fourth quarter.

Seagate shipments were not impacted as much as Western Digital’s because Seagate's HDD manufacturing plant in Thailand is located on high ground, noted Fang Zhang, analyst for storage systems at IHS. Western Digital’s HDD manufacturing facilities were on lower ground and were inundated by the October storm waters. Western Digital's HD production in the fourth quarter was about half of what it was in the third, according to Zhang.

HDD shipments from the industry’s five major manufacturers dropped 30 percent from 175.2 million units in the third quarter to 123.3 million in the fourth. Other drive makers include Toshiba, Hitachi Global Storage Technologies, and Samsung Electronics.