After the Floods, a Sea of Disk Drive Shortages

According to Businessweek, Seagate Chief Executive Officer, Stephen J. Luczo, is forecasting difficult times for the disk drive industry. Each of the hundreds of thousands of drives Seagate’s Thai factories ship every day contains parts from 130 or more suppliers. Many of these suppliers are three feet under water. For the past six weeks the floodwaters have engulfed much of the industrial heartland north of Bangkok.

Some Wall Street analysts predict production will be back to “pre-flood” levels by summer, 2012. Luczo believes that this prediction is nonsense. “This is going to take a lot longer than people are assuming, until the end of 2012 at least,” he says. “And by then, demand will have gone up.”

Average drive prices have already jumped about 20 percent because of the flooding. Western Digital and Toshiba have major factories in the flood zone, and industry production is expected to be 50 million drives short of its “180 million” goal this quarter. Luczo says he could raise prices 40 percent but instead is offering 20 percent hikes to those who commit to one-year to three-year contracts. “People are going to appreciate the complexity of this business,” he says.

The Flooding, a natural disaster, in Thailand has created an upward shift in the supply curve in the disk drive industry. The flooding has crippled all three of the major disk drive suppliers; Seagate, Western Digital, and Toshiba. Since the flood has reduced production to all of the world’s suppliers of disk drives, there is no alternative product to replace the higher priced disk drives. Not only is there a shift in the supply curve, but according to Luczo demand will also increase by the end of 2012. This shift to the right in the demand curve will cause the price to increase even more. Therefore, consumers are going to be paying a much higher price for disk drives ‘till 2013.