Market– Seagate’s and Western Digitals recent resurgence in stock valuations is reflective of a stronger than anticipated personal computer market, market consolidation, and cost cutting; with the hard drive manufacturers balancing manufacturing capacity against demand.
With manufacturers kicking the unit volume addiction expect total unit volumes to drop as manufacturers abandon the practice of utilize capacity. As a rule of thumb if the manufacturers can build to 98% of demand they can manage pricing. If supply exceeds demand by 10% they quickly lose control of pricing. Manufactures have been shuddering and reducing capacity as well as reorienting capacity to more profitable lines. Expect unit volumes to drop as manufactures build to forecasts rather than available capacity. We expect to see low margin products such 500GB and 1TB fall out of favor with manufacturers shifting capacity to higher margin products.
After a series of price increase we expect to see pricing stabilize but we do expect to see pockets of shortages that will spike pricing on a requirements basis due to missed forecasts and low production yields around new product introductions.
We are seeing increased open market demand for Enterprise SATA drives across four, six and eight terabyte capacities because users can not justify the higher cost of SAS relative to performance. SAS product is readily available with lite demand.
Western Digital – is looking to the future as it looks to accelerate the transition to SSD with its recent announcement of investment in their joint venture with Toshiba in 3D NAND capacity that they acquired in their acquisition of Sandisk.
While the integration of HGST has been hampered by a moratorium on sharing of key sales data placed on them by the Ministry of Commerce People’s Republic of China. http://www.wdc.com/en/company/investor/library/201510FAQ.pdf.
With WD anticipating increased revenue for Q4 this will embolden them to hold firm on pricing in the upcoming months. We continue to see tightening of supply for 4TB, 6TB and 8TB capacities but expect pricing to settle at current levels. Word on the street is that WD is only offering special price allocations (SPAs) to key customers.
HGST – little has changed over the past 30 days. HGST continues to restrict 8TB supplies to move customers into their new 10TB helium drives. Increasingly we are seeing authorized distribution sourcing product from the open market.
Toshiba – gained market share and pushed pricing up ten percent but their impact on the overall market will be minimal due to their limited market share. However, this does indicate an overall tightening of the market.
Increasingly Toshiba’s focus is on NAND and SSD which is projected to grow by a factor of by 2020.
Seagate – Seagate’s continues to restructure itself with its recent announcements that they will be ceasing manufacturing in their Malaysian facilities of Penang and Negeri. The combination consolidation efforts and the news of better than anticipated PC sales in the states drove Seagate stock to surge 21% in a single day. Their aggressively right sizing their footprint gives them some breathing room but they still need to sort out a long term strategy in a quickly evolving market.
With 6TB and 8TB SATA in high demand and shrinking stock at franchise we have seen prices firm. We have seen pricing for ST8000DM02 jump from $205 to the $240 range and we expect pricing to continue to climb. Seagate is not offering any type pf SPAs.
Seagate just launched a new rebranding with color codes similar to WD which make it much easier to understand their offerings.
General Thoughts- NAND flash pricing is expected to increase, thankfully giving the hard drive manufacturers much needed space to get their arms around their cost structures. They still need to transition their businesses to the realties of today’s storage environment however there are differing views on what that future looks like.
While many market pundits talk of the disk drive going the way of the floppy Seagate’s CEO is optimistic with Luczo stating “We believe the long-term trend of exabyte storage demand growth exceeding HDD areal density growth remains intact for the foreseeable future. Seagate will continue to evolve its product offering, technology investment and manufacturing footprint to best serve our customers with the worlds most advanced and cost advantaged HDD products.“
It comes down to demand and with big data and artificial intelligence coming into the home of the consumer demand for storage is going to explode. I am betting that hard drives will still have a role to play.
I would love to hear what you think.
Please email me a stephen.buckler@horiontechnology.com
