Enterprise disk drive profit margins

[stevech]

Interesting quote of quote that appeared on Fidelity.com today

Profit margins for "enterprise" hard drives are 70% to 80% higher than PC disk margins, according to Pacific Crest Securities analyst Monika Garg.

Some on this forum speculated that the only real difference between 3.5 in. drives as Enterprise and as consumer drives is the warranty, and marketing approach.

 

[Terry Kennedy]

Some on this forum speculated that the only real difference between 3.5 in. drives as Enterprise and as consumer drives is the warranty, and marketing approach.

I haven't been on the manufacturer side in some time, so I can't say for sure. However, I've been told that the RMA process (replacement drive and shipping) results in a net loss on the original drive, even if the defective drive is eventually repaired and used as a warranty replacement for some other customer.

Plus, the qualification process can often involve sending drives back and forth to the manufacturer. I had 100 enterprise-grade drives that went back to the manufacturer a couple times when qualifying them for my product. I'd assume that Dell, HP, etc. use a higher quantity than that when qualifying a new model, but of course they buy a lot more than I do, so the cost is spread out over a larger number of drives.

When negotiating an OEM purchase of enterprise drives, I've found that the biggest effect on price comes from selecting a different warranty - moreso than the quantity of drives specified in the contract (for, say, a $1M contract). Warranties range anywhere from 30 day DOA replacement and then I'm on my own, to the full 3 or 5 years that the retail version would have. Other things that effect the price are the batching of returns and the required turnaround - for example, returns of multiples of 200 drives with a 60-day turnaround is a lot cheaper than returns of 20's with 1-week turnaround. There's also a penalty for returning drives that test as "no problem found" if it exceeds a certain percentage specified in the contract.

This makes me think that the warranty expenses are what cuts most into manufacturer profit.

 

[stevech]

warranty costs... yes, they don't want to take a risk so up goes the price to mitigate.