2015 has ended, which means 2016 has started. Happy New Year everyone! One thing we learned in 2015 is that we have not learned from history. Remember the late 1990s to the early 2000s when 2.5” HDD pricing for notebooks pretty much took a nose dive? It was great for OEMs, but not so great for HDD vendors. Trying to make an ‘acceptable’ margin quickly turned into trying to survive for some companies – and they didn’t! Companies were chasing each other down a slippery slope to increase share at the expense of any profit in some cases.
Now it is 2016 and three HDD vendors remain (barely) along with a lot of SSD companies, and we have seen pretty much the same behavior on SSD pricing throughout 2015 that will likely trigger additional consolidation in the SSD industry. Back to pricing – just over one year ago, average pricing for a 256 GB SSD was around $125. One year later, this same drive is about $85. That’s a 33% reduction in one year. How long can this type of behavior last? It is hard to imagine why any SSD company would want to follow such insane price trends down the road to un-profitability. As we all know from history (about 60 years worth in the HDD industry) that once you lower your price, there is no going back – unless, of course, there is a natural disaster in the world – which no one ever wants to see. But even then, price increases would be temporary for the most part.
I caution companies on price erosion at a rate unsustainable for profitability and business longevity. It is nice to gain market share, but is such aggressive price erosion sustainable? And, more importantly, is it worth jeopardizing the long-term survivability of a company?