Ascending Hard Disk Costs

Based on the article ‘Create sustainable storage and mitigate rising costs’ from The Star written by Johnson Khoo on 25^th July 2012.

We are living in a technological savvy world where everywhere you go you will see people with their tablets, laptop, smart phones and many more high-tech devices. This has affected the hard disk drive industry that had experience a year-over-year price erosion of about 10%-15%. Due to the rapid technological advancement, products are easily produced with the help of technological-advanced machineries. Due to this, production increases so does the supply in the market. This causes a fall in price! In a demand and supply curve, the supply curve will shift towards the right hence lowering down the price of hard disk.

Recently, there is a shot up in the price of hard disk by as much as 5% to 15%. This is due to the catastrophic floods in Thailand last year that halt the production facilities thus causing manufacturing and supply shortages in the industry. This natural disaster causes a decrease in supply and shifts the supply curve leftward. Creating a shortage thus increasing the price of hard disk drive.

Prior to the technological advancement, it is believed that the organisation would find it difficult to allocate or invest in a particular factor of production where they are most common known as the capital, land, labour and enterprise. Therefore, the issue of scarcity often doubled up in this industry. Scarcity is where there are unlimited wants and limited resources. Hence the organisation will always have to make a choice as to which factor of production they should spent more and this is known as opportunity cost which is next best alternative forgone. This means if the organisation were to allocate more funds on capital and labour, for instance, they will be forgoing or sacrificing the other factors of production such as enterprise and land. Following the given example above, if the organisation were to spend on capital and labour, the level of efficiency will remain the same on the Production Possibilities Frontier (PPF). Thus the only way the organisation can expand or grow its production is if there is a technological advancement, which is the exact factor that is found in this article.

To make things worse, industry researcher Gartner predicts that prices will continue to soar this year. Whether this situation is a short-term anomaly or a long-term reality as manufacturers rebuild their production facilities and invest in next-generation disk technologies remains to be seen but one thing is certain: It is creating cost burden for data centres.

In response to this, organisations are looking into the option of acquiring new storage devices due to the rapid growth of data as an alternative to counter this problem. But in my opinion, this is just a short-term effect as it would be foreseeable that people would want to invest in future technology instead of hard disk. Besides, if there is a substitute for hard disk, there would be a shift in terms of investment therefore such price hike is just temporary.

Despite the cost spiralling upwards, it is a rather interesting fact that the scale of an organisation’s storage often does not match its actual consumption. In majority of cases, organisations use only 30% of their storage capacity while the remaining 70% sits idle. To put things short and simple, this is in another word, under-utilisation of resources.

If we refer to the (PPF), the under-utilisation of resources will fall below the curve, which also means it is inefficient! This means that there is still plenty of room for resource utilisation and that brings us to another question. Do organisation even need to suffer from rising prices? When there is still resources not utilised?

In fact, I strongly suggest that instead of acquiring new media, these organisations should focus on enhancing their storage utilisation to enable higher efficiency thus lowering cost. To achieve a high level of efficiency, there are two key aspects: Allocation efficiency and Productive efficiency.

The problem with this industry is that they usually allocate capacity beyond user’s request and keep 10 to 15 copies of all data in order to ensure severe levels and avoid unexpected capacity running out. Allocation efficiency means that we cannot produce more of one good without giving up some other good. In this case, we should eliminate the waste of over-allocation. By eliminating the allocation of unused space, the capacity and time needed to make copies are reduced.

Whereas, production efficiency is achieved when we produce goods and services at the lowest possible cost. For the organisation to achieve production efficiency, it has to first use the capacity in an efficient manner so as to reduce cost and increase performance. Only through this, a high level of efficiency will be attained.

In terms of externalities, it is difficult to decide whether hard disks fall under a merit goods or demerit goods because hard disks appears to be a neutral product where it may benefit the society or even harm the society with its production. Merit goods are goods that exhibit positive externalities whereas demerit goods that exhibit negative externalities.

Suppose hard disks are viewed as merit goods whereby it benefits the society by providing storage capacity for computers and laptops, the fact that it is being over-produced and over-supplied is submitted to be a positive effect as merit goods are generally under-produce. If hard disks are seen as demerit goods, the flood resulting in a shortage of supply is beneficial to the society because the supply of hard disks will be closer to the socially optimum level. The reasoning behind this is demerit goods such as cigarettes and alcohol in broad terms over-produce. Therefore, it would be tough to determine the current state of production is satisfactory.

All in all, in line with the last paragraph of the article, it is suggested that the organisation should opt for a cheaper alternative in order to reduce cost. This would also involve scarcity, opportunity cost, PPF and efficiency as discussed above.

( Author : Student ID - 1101A13303 )