In our latest Storage Market Brief, Horizon Technology chief operating officer Stephen Buckler assesses the impact of the coronavirus pandemic on the data storage market.
As we enter the second half of 2020, it is increasingly difficult to talk about what the remainder of the year will look like for the data storage market without touching on politics and world events. In addition to the supply chain challenges presented by the long-standing trade war with China and the massive supply chain shock triggered by COVID-19, we are now having to manage the fallout from the virus on the world’s economies and our day-to-day lives.
The UN estimates that the lockdown affected four out of five of the world’s workforce, topping 2.7 billion workers. In response, global leaders have taken the kind of measures normally reserved for times of war to limit societal damage by priming their economies with stimulus programs while trying to control the pandemic.
The stimulus has taken a variety of forms, not least tax relief, slashed interest rates, paycheck protection programs, expanded unemployment benefits, pandemic relief funds, and massive liquidity injections into the capital markets—to name a few. These actions will have near-term stabilizing effects, but will also result in possible downstream impacts—thinking here of budget deficits, potential inflationary pressures, and the risk of crony capitalism—that will stay with us for years to come. Compounding the uncertainty is the fear that countries may devalue their currencies, further upending global markets.
Events to watch for in shaping the second half of 2020 are the upcoming presidential election in the United States, the ongoing rivalry with China, the societal changes resulting from COVID-19, and the continued rollout of 5G. China’s tightening grip on Hong Kong—a global trading hub vital in the movement of goods in and out of the Chinese mainland—only adds supply chain tension into the simmering trade war.
Amid the mayhem, the technology sector arguably stands to benefit most from the pandemic as businesses increasingly announce long-term commitments to work-from-home (further driving up cloud usage and PC demand) and societies everywhere trade air travel for video calls.
Enterprise Market
There is no escaping the imprint that COVID-19 is leaving on the enterprise storage market.
Hyperscale cloud service providers clearly benefited as users moved daily activities en masse to the cloud—CSPs enjoyed a 34% year-over-year increase in cloud spending in Q1.
The virus was not so kind, though, to the enterprise hardware builders that support on-premises demand, with buyers standing on the sidelines as they tried to get their arms around an economy staggered by the virus. Indeed, IDC reported that hardware builders watched sales drop by an aggregate of 6%.
It should come as no surprise to anyone that the confusion and uncertainty surrounding COVID-19, not least the many conflicting rules from state to state, negatively impacted enterprise sales. We expect Q2 to reflect further declines, into the double digits.
Relief may be in sight, though. In speaking to a drive supplier into the enterprise sector, he stated that after a ten-week period of little to no quoting, they are starting to see quote activity increase.
Hyperscalers Lead the Charge
In every respect, hyperscale activity outflanked the enterprise.
Take sales of solid state drives, where TrendFocus reported that hyperscalers continued to snap up PCIe SSD inventory (to replace SATA sockets) throughout Q1, which drove a sharp increase in SSD exabytes shipped. By contrast, PCIe purchasing remained slower for on-prem, always less agile in adopting new technology.
Nearline HDD sales also benefited from the CSP buying spree, with Q1 unit sales increasing 16% amid a 65% year-on-year increase in nearline exabytes shipped.
The Outlook for HDD
Despite long-standing talk of hard drives being displaced by SSD, the reality remains that hard drives are not going anywhere any time soon.
Breaking down Q1’s numbers, roughly 30% of HDD shipments were 14TB capacity or larger and 59% were 10TB capacities or larger. Cost remains the primary driver in the storage value equation, with HDD delivering a 10x cost benefit over SSD.
Although SSD has closed the price gap with hard drives, HDD capacities grew at a faster rate over the past five to eight years than SSD, allowing HDD to maintain its cost-benefit advantage. While 3D NAND allowed for increased densities, 3D NAND-based SSD are costlier to build due to the added complexity of stacking and the requirement for purer raw materials.
And while there is a strong use case for QLC-based SSD for read-intensive applications around AI and machine learning, the technology’s lack of durability negates its appeal as a general storage option in the data center.
The Race for Higher Capacities
Meanwhile, HDD manufacturers continue to push their cost advantage by increasing areal density. There remain, however, obstacles to overcome.
To make the jump to 18TB and beyond, new technologies are needed—simply adding more platters with conventional magnetic storage (CMR) only goes so far.
For its part, Western Digital has moved its R&D away from MAMR (microwave-assisted magnetic recording) and introduced an energy-assisted magnetic recording (EAMR) technology that continues to utilize CMR for its 18TB drive.
To arrive at the 20TB drive originally earmarked for volume shipment in 2020, WDC leverages SMR technology (shingled magnetic recording)—similar to the overlay of shingles on a roof, the shingling of the tracks allows for greater densities on the platter. WD’s 20TB drives are helium-filled and, unlike drop-in CMR replacements, require software modifications to the command set to ensure data is written sequentially to the drive for greater cost efficiency.
Meanwhile, Seagate is providing a nine-platter version for its 18TB CMR drive, expected to ship midyear. Its HAMR-based (heat assisted magnetic recording) 20TB drive will ship toward the end of 2020, according to CEO Dave Mosley.
After a strong first half of the year for HDD, pundits expect demand to taper off for the remainder of 2020. And, with CMR fast approaching its capacity limits, most hyperscalers will choose to wait for 18TB HDD before refreshing storage as the jump from 14TB to 16TB does not offer enough upside.
The open question, as so often is the case, is one of timing. How quickly will the availability of 18TB HDD provide the hyperscalers with new impetus to refresh storage after the recent buying spree?
Growing Strength of SSD
As mentioned, SSD hyperscale demand for PCIe SSD spiked in Q4 2019, with a 16% increase in exabytes shipped—followed by a 22% increase in Q1 2020, according to data from TrendFocus.
Block chain, IoT, and big data require fast data access while low latency requirements continue to push PCIe adoption. Further pushing adoption are the increasing size of data sets, driven by virtualization, with hyperconverged systems delivering 17% year-on-year growth in the fourth quarter of 2019, according to data from IDC, despite a sharp contraction in converged system sales overall.
The rise of data center SSD is underscored by the growing adoption of the NVMe protocol, designed to maximize solid state performance. Indeed, NVMe-based SSD is projected to quadruple from USD 44.6 billion in 2020 to USD 163.5 billion by 2025.
As with any change in interconnect standards, the widespread deployment of NVMe comes with its challenges—software, data integrity, and compatibility issues will need to be sorted out. That said, new protocols such as NVMe-Over-TCP (which allows NVMe to be used with standard IP networks) will certainly broaden its appeal.
HDD vs SSD
Democratizing data is key to the success of the digital economy, with cost the primary driver. However, in the age-old debate over HDD vs SSD, success is not an all-or-nothing proposition.
The HDD makers’ push to increase areal density promises mass data storage at a low cost per bit, necessary to accommodate the skyrocketing increase in data generation, while SSD provides the performance to act on that data in a meaningful way.
For now, the two are working together to give us the best of both worlds.
Desktop/Notebook
The desktop and notebook space received a boost from the urgent global experiment in work-from-home (WFH) as the pandemic required those who could work from home to do so. Corporate sales were the primary driver, with Western Digital posting its best quarter on record for client SSD sales in Q1 as OEMs pulled in drives against an uncertain supply chain.
PC ODMs remain confident that demand will carry into Q3 as firms continue to outfit employees with new systems to support WFH initiatives and parents and school districts furnish students with systems for home schooling.
However, they are far less optimistic for Q4 as stimulus funds dry up and the impact of COVID on the economy sets in. Trend Focus is even less sanguine, forecasting a year-over-year decline of 10% in PC shipments. If the economy fails to rebound, expect business and consumers to pull back and hoard funds and make that 10% drop a reality.
Gaming Further Drives SSD
It’s no secret that HDD has steadily been losing market share within the consumer space as SSD offers a better performance value proposition compared with spinning disks.
Further pushing storage to SSD is the release of new game consoles by both Sony and Microsoft that promise to offer rich graphics requiring the performance benefits of SSD.
Looking forward, console sales along with 5G handset sales are both wild cards—each is very dependent on consumer sentiment, which can make or break a quarter. That said, we have seen a big uptick in gaming activity as COVID redefines social norms, which should support demand for updated consoles.
For its part, 5G is dependent on the rollout of upgraded base stations, which has been slowed by the Huawei controversy, although we are already seeing healthy 5G handset demand in China. Nonetheless, if both fail to deliver against expectation, we will watch NAND pricing drop, though any decline is projected to be brief amid reports that manufacturing capacity adds have been modest, blunting a more severe oversupply scenario.
One area that had previously been a bright spot for the HDD manufacturers is surveillance. However, surveillance is heavily dependent on installs, which took a hit as surveillance was not deemed as essential during the height of the lockdown. Reports are that activity is starting to pick up as COVID rules ease.
Feedback on pricing is that manufacturers were trying to push pricing upwards 3%-5% to absorb supply chain price increases, with mixed results. Overall, expect to see prices for consumer HDD and SSD trend down as we enter the second half of the year.
Finally, WD and Seagate are reported to have made gains in consumer market share against Toshiba, which grappled with COVID-related supply disruptions.
The Road Ahead
With a flagging world economy, an unending pandemic, a U.S. presidential election, and a trade war between the world’s two superpowers vying for control of the technology that will underpin the digital economy, the head winds are many.
One thing is certain is that business will not go back to the way it was. The supply chain was already stressed by the trade war, and COVID has greatly stressed it further. The “Made in China 2025” initiative to make China a technological powerhouse by moving manufacturing of critical design and manufacturing inside China will have long-term effects on the technology market. Bowing to these pressures, the supply chain is moving away from a centralized model, as world leaders question the wisdom of integrated economies when competing against one another for the top spot.
One can only hope we can get past this bout of nationalism. If history has taught us anything, it is that most of the world’s problems cannot be solved by a single nation alone.
Horizon Technology is a leader in IT asset disposition and storage services to the data center. Get in touch to find out how we can help get more out of your data center hardware.
