Disks in short supply, hardware vendors say

Von Lucas Mearian

IBM Corp. and EMC Corp. last week became the second and third large hardware vendors to report a disk drive shortage, and market research firm IDC said it expects delays in server shipments resulting from the scarcity to continue through this year"s second quarter.

Ron Clarke, director of commodity procurement for IBM"s integrated supply chain operation, said the supply of disk drives "is a little bit tight right now." The shortage is industrywide and has been exacerbated because all the major drive suppliers launched upgraded versions of their products in the fourth quarter, he said.

Clarke added, though, that IBM saw the disk drive shortage coming and ordered additional stock to protect itself and its customers. He said he"s optimistic that the supply problem will be resolved in the next 30 to 60 days.

But EMC warned that higher disk prices caused by the supply shortfall are likely to cut into its profit margins during the first half of the year. "My experience shows me you kind of get through these things in a six-month period," CEO Joe Tucci said during EMC"s fourth-quarter earnings conference call last Tuesday. "We"ll see how that goes."

The acknowledgements of a shortage by IBM and EMC came after Computerworld reported that some server shipments by Hewlett-Packard Co. were being delayed because the needed drives are on back order.

A draft report issued last week by IDC said that in last year"s fourth quarter, the demand for enterprise-class hard drives exceeded supply by nearly 7 percent, or about 400,000 drives. IDC said the shortfall was due to a combination of the product transition cited by Clarke and an increase in purchases by hardware vendors.

"The resulting allocation conditions were not unexpected but are deeper, more broad and more prolonged than originally forecast," the Framingham, Mass.-based company said in its report.

An investigation by IDC revealed delays in server shipments by all the major system vendors except Dell Inc., which told both IDC and Computerworld that it hasn"t been affected. The delays primarily involve higher-end drives, specifically 15,000-rpm models with 73GB and 146GB capacities, IDC said.

On average, the standard shipment time for an enterprise server is one week, according to IDC. "That has been extended to two to three weeks average because of this," said John Buttress, an analyst at IDC. "Obviously, if it"s an average of two to three weeks, some shipments are taking longer than that."

For users, "avoiding problems posed by product shortages takes homework, including analysis of commodity markets -- the raw products that make up disk drives," said Gerry Bundle, purchasing manager at San Jose-based Calpine Corp., which operates power plants in 21 states.

Vendors regularly conduct such analyses, but whether they"re willing to share their supply forecasts depends on the relationships they have with users, Bundle said. Companies that don"t have clout with a vendor or the resources to do their own market analysis work may be at the mercy of their suppliers, he warned.

But if a company is in deep with a vendor and is buying systems, services and support, "it"s a key requirement that all the critical information be shared," Bundle said. "You have to try to leverage their expertise and, frankly, request it."

EMC"s leading disk supplier, Seagate Technology LLC, is among the companies that are going through product transitions, and Tucci acknowledged that there is "probably a shortage of what the industry will demand out there in terms of disk drives" based on Fibre Channel technology. EMC has been able to work around that problem in terms of shipments to users, he said.

But Tucci noted that disk drive makers "don"t exactly have a lot of reasons right now to continue to drop their costs." That"s putting pressure on EMC because users continue to demand lower prices on its disk arrays, he said.

David Szabados, a spokesman for Scotts Valley, Calif.-based Seagate, said a shift in IT purchasing by users from "maintenance-only mode" to spending on new projects has also led to demand for enterprise-class drives that"s higher than vendors forecast.

Joel Hagberg, vice president of marketing and business development at disk drive maker Fujitsu Computer Products of America Inc. in San Jose, agreed that demand is growing robustly at the same time that vendors like Fujitsu are moving to new products.

The shortage will continue well into 2005, Hagberg predicted. "But we"re executing well in terms of qualifying our new products and pushing to improve supply to meet the increased demand," he said.