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Thai floods lead to surge in UK PC prices

But it's a good time to get an SSD

The price of PCs and laptops is set to rocket after the series of floods in Thailand sent hard disk drive (HDD) costs through the roof. PC Advisor investigates.

The floods, which have plagued the country since July and so-far claimed more than 380 lives, resulted in hard drive manufacturers Western Digital and Toshiba halting production of drives after temporarily shutting down their factories in the country. Meanwhile, Seagate Technology said the supply of components to its factories in Thailand has been disrupted.

Industry research firm IDC says Thailand accounts for up to 45 percent of worldwide hard-drive production and the flooding has damaged more than a dozen hard-disk-drive factories.

Western Digital, which is the largest producer of hard drives, is expected to be hit the hardest as IDC predicts that up to 75 percent of its production will be temporarily shut down. Furthermore, it could even lose its position as the largest shipper of the drives.

Meanwhile, IHS iSuppli has predicted that the overall market shortage of hard drives due to factory flooding in Thailand will reach 25 to 28 percent over the next six months. It predicts the number of hard drives shipped during Q4 will decline by 27.7 percent to 125 million units, from 173 million shipped in the third quarter.

As a result vendors are keeping their most valuable customers - computer system manufacturers - supplied with hard drives in favour of the consumer retail market. However, the existing supply isn't infinite which means eventual shortages will lead to price increases that are subsequently passed on to the consumer, with some analysts predicting increases of up to 10 percent over the coming quarter.

"You'll start to see PC makers increase prices for some products. So indirectly, consumers will face some higher prices because of higher HDD prices," said John Rydning, a vice president of research at IDC.http://newcms.idg.co.uk/index.cfm?event=feature:newItem

"We generally believe the HDD industry will find a way to return to pre-flood production levels by March, but by that point HDD supplies will be at extremely low levels," Rydning said. "It's still going to be a pretty painful period from December through February for most HDD customers."

Rydning said he also expects that higher prices for USB-attached HDD products. Furthermore, the shortage of hard-drive parts could result in PC shipments falling short by 10 percent in the fourth quarter this year compared to previous projections.

Thailand is the world's second-largest producer of HDDs after China and is a major supplier of hard drive parts. Located in the country are key component makers like Nidec, which according to iSuppli, supplies more than 70 percent of all global HDD motors, and is a supplier to major HDD manufacturers like Western Digital, Seagate, Hitachi Global Storage Technologies, Toshiba and Samsung.

Read/write heads are a key component for hard drive manufacturers. While one of the major components of read/write heads - read/write head wafers - are produced in Ireland, the US and Japan, another critical component, the slider, the block on the tip of a read/write head on which the record and playback head (wafer) is mounted is produced in Thailand.

"For Western Digital, we believe that will be the component most critically short in 2012," Rydning said.

IHS iSuppli said the PC industry appears to have sufficient stockpiles to last through the fourth quarter of 2011 but with HDD production disruptions expected to last at least six months, the shortage could impact laptop PC production in the first quarter of 2012.

From the second quarter of 2012, laptop makers are likely to start sourcing hard drives from alternative sources in different regions and using other types of storage, including solid state drives (SSDs).

Loren Loverde, vice president at IDC, said hard drives account for between 7 to 10 percent of the total cost of a PC, which while not substantial, could impact overall PC pricing compared to smaller components.

"We do think that there will be a PC price rise," Loverde said. (And he's right.)

Loverde predicts PC makers could offset the higher price by installing lower-capacity hard drives. Solid-state drives are an alternate storage option to hard drives, but have a very small market share.

According to Ben Miles from PC maker Chillblast, the price of hard drives is rising by between £5 and £7 per day. He cited components retailer eBuyer, as an example. Prior to the floods, eBuyer was offering hard drives from around £40 inc VAT but now is charging around £170 inc VAT. In fact, Miles said it's impossible for consumers to obtain a hard drive for less than £100 at present.

Miles says that initially the firm did not adjust the prices of its systems to reflect the surging cost of hard drives but, as a result, saw its margin drop to the point that it was making a significant loss on each PC.

Miles said this could potentially have put the company out of business and left it with no option to increase prices on every system containing a hard drive by £50 excluding VAT.

Chillblast says its has enough hard drive stocks for sales in 2011, but come 2012 if the supplies have not started to increase again, the company fears it may have to increase the prices of its systems once again. Miles said that optimistically some expect supplies to begin returning to pre-flood levels by February 2012. However, more pessimistic industry commentators believe it won't be until August. Miles said it's not just a case of draining away the flood water from factories, equipment will also have to rebuilt, which could take many months.

Miles advised consumers that need a new PC to do so as soon as possible, before prices rise even more. Furthermore, he also revealed for those considering upgrading to a solid state drive, this is most cost-effective time as the cost difference between hard drives and SSDs is at an all time low.

Chillblast isn't alone however. Most PC manufacturers are in the same boat. For example, Acer has already raised the price of its laptops in reaction to the situation, which Chairman J.T.Wang called a "bottleneck" in the whole PC production chain.

Meanwhile, Jonathan Bakewell from Eclipse said the company has also had to increase the price of its systems by between five and ten percent to cover the rocketing price of hard drives. According to Bakewell, the company has been hit "hard and fast" with prices of hard drives "more than doubling" over the past few weeks, so it has had no choice but to pass on the increases to the consumer.

"Supplies are definitely running out," he said, while also revealing it could be at least six to nine months before hard drive manufacturing reaches the levels it was at before the floods.

"It's going to take a long time for the market to recover," he added, although saying while the initial impact has been hard, prices won't continue to rise with such gusto.

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