A sudden worldwide shortage of hard drives has yet to impact banks that are planning corporate PC upgrades or migrating their data into the cloud. But it's not clear if these plans will remain unencumbered for long.

PC industry analysts expect that the scarcity and rising prices of drives for both the retail and corporate markets will last into 2013, due to a slow recovery from severe flooding last fall in Thailand, the world's biggest hard drive producer after China.

A full-blown crisis in the supply chain would have big implications for maufacturers in the server and storage businesses, with any price increases on their end potentially getting passed along to customers. If that occurs, it would require some tough decisions by banks, which would have to weigh their desire for technology upgrades against the higher cost of the materials needed to do the job.

Gartner, the technology research firm, expected an 8 percent to 10 percent cutback in the fourth-quarter supply of hard drives to the enterprise server and storage market, and warned late last year that the outlook for business-critical hard drives was worsening.

Technology-oriented working groups at the American Bankers Association have not yet delved into how shortages or price increases might impact banks, which already face tight budgets for technology projects. But a survey conducted last year by consulting firm Frost & Sullivan indicates that server and storage upgrades are a critical need: 41 percent of technology decision makers at banks put cloud-computing service investments at the top of their priority lists.

The trouble in the hard-drive market could prompt banks to table some projects until next year, says Rodney Nelsestuen, a research analyst for TowerGroup. A delay in cloud investments wouldn't keep banks from meeting short-term storage or data needs, which could be handled with current hardware or by turning to outsourcers with excess storage capacity to sell. But with the increasing loads of data that banks are gathering for compliance or business reasons, any shakeup in the storage market could be a rude awakening for chief information officers. "I talk to a lot of CIOs saying, 'I don't worry about data because storage is cheap," says Nelsestuen.

The impact of hard-drive shortages and price hikes already have hit the retail market hard. Intel had to downgrade its fourth-quarter sales projections by as much as $1 billion as customers reduced inventories because of the shortage. And prices for some popular hard drive products on reseller sites like Newegg.com more than doubled from the summer.

Despite some factory owners being able to move operations to plants in China or Singapore, there was still a shortage of almost 50 million drives (out of a projected 180 million) in the fourth quarter due to the lost shipments from Thailand.

Major commercial players like EMC have used their heft to ensure more continuity in their supply chains. Dell told investors in the fall that it expected a smooth supply chain through the early part of this year, though it could not forecast much further than this spring.

Analysts say there still may be a 5 percent overall shortage of drives in the first quarter-an improvement, but not one that portends the problem will be over.

"You probably won't get back to pre-flood conditions in the industry until sometime early in 2013," says John Rydning, a research vice president who follows the hard-drive industry for IDC.

This story first ran on the Bank Technology News web site.

 

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