PC Probe: The stupidly high price of storage
Prices for storage in phones, tablets and laptops are skewed against higher-end customers. Stewart Stewart Mitchell Mitchell finds out why
Prices for storage in tablets, PCs and phones are skewed against higher-end customers. Why?
The price of storage has traditionally fallen like a paper aeroplane, starting high as new technology is introduced and spiralling downwards as fabrication plants make mass production cheaper.
However, the storage in higher-end phones, tablets and laptops using SSDs has bucked that trend by being kept artificially high to protect margins for manufacturers, according to analysts and industry insiders.
Storage is not a component priced according to the cost of manufacture, or even supply and demand, but simply on what companies think consumers will be prepared to pay.
Google’s Pixel 2 handsets, for example, add £100 for an additional 32GB of storage, while the Pixelbook costs £200 more for the 256GB model than the entry-level 128GB version. That’s hard to equate with OEM contract prices for 256GB SSDs, which according to market watcher DRAMeXchange averaged at $79 for a drive in July 2017 – a princely $30 more than 128GB SSDs.
“The market is ripe for exploitation by device manufacturers,” said Ben Miles, a director at Chillblast. “It’s a bonanza – a classic situation in that they make the kit and deliberately under specify on storage [in lower-end models] so that most people will go for the next one up.”
Google is by no means the only company to inflate the price of storage. Apple’s MacBook Air, for example, adds £150 for moving from a 128GB SSD to a 256GB version, while a Microsoft Surface Pro carrying a 1TB SSD costs £550 more than a similarly specced machine with a 512GB drive.
Analysts say companies are exploiting consumers who are trying to future-proof their purchases by ensuring their devices have sufficient storage. “If you’re going to spend £1,000 on a machine then an extra £100 for the better configuration isn’t going to stop you – that’s not the case with lower-end machines where people don’t have the money,” said Chrystelle Labesque, European director at research company IDC.
“Those premium devices are doing well and those prosumer devices are selling well at a higher price,” she
There is definitely more margin on those premium machines, where people are willing to pay extra
said. “I think they aim to make money from all devices, but there is definitely more margin on those premium machines, where people are willing to pay extra and companies are seeing a willingness to pay.”
Smartphone manufacturers are particularly guilty of making consumers pay a high premium for extra storage, especially when handsets have no expandable storage slots. “The reality is that at the entry level [of the smartphone market] they’re probably making about 1% margin,” said Miles. “LG revealed recently that the flagship G4 is built to a 1% margin. That’s tight – you’re making $6 on a $600 smartphone or you can make an extra $40 profit on the next one up, which explains why they would do it.
“It’s part of the business model on handsets – they rely on the higher capacity units to make the mixed margin across the whole line work. There are still a lot of people who see a pen drive that’s 32GB for £8 and they’re astonished at the perceived value for money that delivers.”
Raw costs
The convoluted supply chain makes it hard to see exactly how much the raw storage costs manufacturers, but although the NAND chips generally used in tablet and some PC SSDs have actually gone up in price in recent months, it is still relatively cheap to buy in bulk.
In October, the base price for a 128GB TLC wafer was between $4.60 and $4.70, while the contract price of 256GB TLC wafers was $9.30 to $9.50, according to figures from DRAMeXchange. So, while the difference in price for consumers might be £200, the manufacturing outlay for the extra raw materials could be less than $5, leaving them with a 40-fold markup on the final sale price for additional memory.
It would be easy to think that squeezing more memory into the machine might have additional manufacturing
costs, which would potentially justify the addition price, but while that may be the case with some memory solutions it is by no means set in stone. “You just order different capacity NAND chips to go on the same PCB – there’s no extra production costs – it’s just the additional component cost,” said Miles.
“They would just buy in the chips and switch them in and out depending on how much storage they want in that particular batch – there would be no additional production cost at all – just the additional cost of the higher density NAND,” Miles continued.
Price per gigabyte
Even if the manufacturers are buying in complete SSDs rather than the component parts, there’s still a massive difference between what system builders might pay and the prices consumers are compelled to endure. “The difference at wholesale between a branded 1TB and a 500GB SSD is about £92, so it works out about 18p a gigabyte,” said Miles.
The Microsoft Surface’s additional step up for the same level of storage, by comparison, is more than £1 per gigabyte, assuming the rest of the internals remain the same. “The really high capacity ones are definitely unreasonably expensive,” said Miles.
It’s not only system manufacturers that add margin on the price of SSDs: well-established SSD manufacturers can also add a large slice of margin between the raw materials and the end user. Depending on their position in the market, SSD makers may aim to keep prices higher than the raw costs suggest.
“Besides the cost of NAND flash, well-known brands can set higher prices for their SSD products and that’s also a major factor in SSD pricing,” said Alan Chen, a NAND flash analyst at DRAMeXchange. “Different SSD makers have different considerations, so not all of them would make maximising margin their priority.
“For instance, major vendors such as Intel would tend to have a margin-oriented pricing policy, but less well- known manufacturers based in China would instead focus on expanding their market shares with a more aggressive pricing strategy.”
Forecasts suggest some of the component costs in SSDs are likely to fall next year ( see boxout), but it’s unclear if consumers wanting to store ever more data on internal storage will see the benefit. “Whilst much of what people use devices for is cloud-based, we’re still heavily reliant on local storage for apps and content,” said Geoff Blaber, a senior analyst with CCS Insight. “This dependency is undoubtedly exacerbating the cost to consumers.”