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HDD Price Gouging Claims Arise From Thai Floods

New York – As the monsoon-induced floodwaters begin to
recede in Thailand, PC and CE manufacturers are trying to determine the impact
the hard-disk-drive (HDD) production halts will have on the their industries in
the coming months.

Already HDD shortages, up to 30 percent, have appeared,
along with massive price hikes, partially caused by price gouging by HDD
distributors and brokers, said one Netgear executive.

Shane Buckley, senior VP and general manager, Netgear’s commercial business unit, said
the price situation has been exasperated by the HDD distributors and brokers.
He called the 30 percent or so increase added by the vendors as fair
considering the shortages that have developed, but the brokers are piling on
and in some cases adding a similar increase before they sell the products into
the channel.

“There is a lot of price gouging going on. Unlike during the
[Japanese] tsunami when the industry pulled together,”

Buckley said, adding, “This
is really an unfair increase.”

These cost increases are already being passed along to the
consumer, and more price increases will take place at retail before the
situation is rectified sometime next year, said Fang Zhang, storage analyst for
IHS iSuppli.

“I saw [prices have] increased significantly from channel
from last month. Desktop 500GB up 24 percent, 750GB  up 36 percent, 1TB up 26 percent, 2TB up 29
percent [and] notebook 500GB up 34 percent,” she said.

Buckley said, “Netgear has spoken with the HDD manufacturers,
asking them to put pressure on the distributors to do the right thing” when it
comes to pricing.

He did not say what their response has been.

As of press time, the flooding has fully shuttered Western
Digital’s Thai factories, with several of the buildings reportedly under 10
feet of water. This has cut Western Digital’s HDD overall production capacity
by 60 percent. Toshiba has also been hard hit, losing 50 percent of its

Seagate and Hitachi GST have also faced disruptions. While
their plants have not suffered damage, many of the component suppliers that
feed these facilities have closed or faced disruptions forcing Seagate and
Hitachi to limit production.

In human terms, the flooding has killed more than 400 people
as of press time, with 113,000 being displaced, according to printed reports.
Four million acres of land have been submerged in the country, according to

The immediate impact on the market has been minimal as most
of the finished drives are already in the pipeline for the holiday season, said

However, going forward, the industry is looking at a 30
percent shortage, and this will continue into at least the first quarter of
2012. This equates to 40 million fewer drives being made in the fourth quarter,
down from the 177 million made during the previous quarter, said Buckley.

Jim Davis, sales VP for LaCie, said some estimate this
figure to be at 50 percent for the final calendar quarter, with effects lasting
well into next year.

“Severe shortages are often followed by dramatic price
increases, which all companies in the market are seeing. These prices are being
passed along through the entire supply chain, right down to the end user,” he

This situation will be mitigated to some extent in
situations where the PC and aftermarket vendors buy directly from the HDD

Steve Baker, industry analysis VP at The NPD Group, said the
HDD makers will not want to anger their direct customers by bumping up their
price if they can help it.

Davis echoed this, saying LaCie has been in the storage
market for 20 years and is in a good position to get appropriate allocations.

Netgear’s Buckley said they have already made arrangements
for supply in the fourth quarter on the open market and are working on the
following period.

Hewlett-Packard representatives said the company has a
diverse-enough supply chain that it did not expect any impact.

External storage maker Buffalo Technology, which sources its
drives, said they are being affected, but are working with all of its partners
and suppliers to minimize the impact.

Baker did expect the situation to correct itself as
additional supply comes online from other sources outside of Thailand.

Zhang was not as sure that the extra production capacity was
available to make up much of the difference. In addition, the first quarter is
a big sales period for China as it contains Chinese New Year.