Storage Demand is Way Up While Costs May Trend Down
The 5TB and 6TB hard drives hit the market.
In a world where technology is driven by storage space and speed, the recent introduction of Seagate’s LaCie 5TB Thunderbolt Series desktop drive and HGST’s Ultrastar He6 6TB enterprise drive is big news. But what does this kind of innovation mean for OEM buyers and supply chain strategists who buy from the open market? Will a mad grab for new product boost demand for new drives and depress prices on old drives? Will a destabilized market force buyers to change their supply chain strategy?
Open market shake-up or business as usual?
Fortunately, the introduction of higher capacity drives into the marketplace is almost all good news for open market buyers. There are, however, some slightly differing views regarding the new drives’ impact on the market.
Our Chief Trading Officer Jonathan Gerber provided me with a wider view of the upcoming state of the market, which is that, for the most part, the introduction of new, higher capacity drives will not have any impact on other product lines, pricing, buying activity or availability. One reason for this is simply because of the nature of high capacity hard drive buyers. The main verticals that spur demand for the newest, highest capacity hard drives are space-hungry OEMs who place a premium on hardware real estate — these include data centers, cloud service providers, and manufacturers of external storage devices and high-end personal systems. Because these types of buyers tend to purchase drives in very high volumes, they also tend to buy the latest products directly from hard drive manufacturers. As a result, their pursuit of new drives will have no effect on the open market.
Furthermore, the buying habits of most OEMs who are currently going to the secondary market for drives are not going to change any time soon. While the space-hungry verticals, such as data centers, deal mostly with capacity-specific drives, other industries like medical, personal computing and enterprise are brand-specific and face “AVL issues.” They are restricted to purchasing the specific parts typically supplied by the distributors on their Approved Vendor Lists. They do not have the flexibility of quickly changing to the newest parts available on the market. Despite the availability of new product, it will be business as usual for these buyers as they continue to purchase drives for their current — and unchanging — install base.
Our Director of Trading Jared Solomon took a slightly different view and offered his predictions on how new, higher capacity drives affect the open market. Jared said that because the market is strong, we shouldn’t see excessive, sudden price drops. However, we still can expect to see some changes in pricing and demand. For example, the old higher caps — the 3TB, 2TB and 1TB drives — are likely to drop in pricing. We also can expect mid caps — the drives in the 320GB to 750GB range — to have further compression on pricing.
Jared also anticipates seeing some softening of demand and buying activity on the older high caps and he expects the 1TB to “grow into the most commonly asked for mainstream drive once the new pricing drops below $40,” possibly in the 3rd quarter.
Whether you take Jonathan’s or Jared’s view on the effects of new, high capacity drives on the open market, you can see that the impact of the new products is not going to be a huge one. While these drives immediately caused tidal waves in tech news, they only potentially will cause ripples in the open market.
Protect your supply chain.
The introduction of higher capacity drives into the market does not cause an impact so great that it warrants a dramatic shift in buying strategy. However, there are always a few things that hard drive buyers and supply chain strategists can do in order to save money, secure their supply chain and properly manage product life cycle:
- Negotiate direct contracts that offer full credit value for failures within the warranty period.
- Utilize recertified drives for the service piece of the supply chain.
- Qualify multiple manufacturers.
As data storage capacity increases, expect to see continued consolidation of the low to mid capacity drives. With the lack of competition among hard drive manufacturers, the market is likely to remain stable in pricing and in demand. Jared said to “look for Toshiba to make a small dent within the enterprise vertical that has traditionally been owned by Seagate, Hitachi and WD.”
According to Jonathan, Big Data, cloud computing and the need for storing data for consumers, such as movies, pictures and streaming media, will drive the storage industry to continue to increase capacities. As the opportunity for bigger, cheaper storage arises, we always find new technology to store data. A great example of this is the way that consumers have transitioned from small, single-use storage media to either local or cloud storage.
As Jonathan put it, “At the consumer level, people are pack rats, and as capacity increases, people will continue to store more information rather than deleting it.”