Market – With Intel and Microsoft reducing their forecasts against expected softening notebook and desktop demand, the hard drive manufacturers require a push from the data centers space to offset declining client HDD shipments. Overall, the large data centers are forecasting increased capex spend over Q4, however, Melanox is reducing their forecast as they transition from 40 GbE to 50/100 GbE solutions, which adds a level of uncertainty if the enterprise market will deliver.
Without offsetting reduction of client drive unit volumes with increased average selling prices and margins of enterprise drives, will the manufacturers continue to adhere to the supply side pricing model discussed in our last market brief, or will they fall back into a demand driven model? Already, we are seeing signs of cracks in their resolve.
Western Digital – WD looks to the public cloud sector for continued strength with a focus on near-line HDD shipments. Despite flattening demand for notebook drives, WD continues to hold pat on not extending price concessions. WD’s firm stance is a product of aggressive cost cutting and a diversified product mix resulting from the transformative SanDisk acquisition, which strengthens their ability to support a strategic vision rather than let the market set pricing.
Expect WD prices to hold firm until December, however, it is unclear if they can keep HGST in the fold, who has been in lock step with pricing, but is showing signs of strain, as detailed below.
HGST – last month, we reported that we felt HGST was well positioned for Q4 with the right product mix and that we saw spot open market near line large cap demand. Possibly a harbinger of a tightening market. A month later, we are looking at things differently with our seeing increasing levels of large cap enterprise drives (4, 6 and 8TB) offers in the spot market.
Looking closely, overall HGST is in the right space with a focus on cloud computing, with most market pundits seeing continued strength in cloud architecture over the next few months. However, we are hearing HGST has experienced recent customer cancellations and slow moving inventory. A rumor circulates that HGST is looking to quietly offload stock into the market without affecting channel pricing and that they are looser with rebate dollars. We are hearing that many enterprise customers are moving to the 10TB, which may cause the supply imbalance. Find yourself in the right place, and you can own the product at a discounted market pricing.
Toshiba – Other than recent reports that Toshiba is selling 3.5” 1Tb SATA at $39.50, which is pulling down pricing for the other manufacturers, Toshiba is making no other price concessions and most drives continue to be reported on allocation.
However, do Intel and Microsoft’s recent reduction in Q4 forecasts undermine Toshiba’s new found strength? Toshiba’s HDD shipments continue to be quoted with 6 to 8 week lead times, but a recent conversation with a white box supply chain manager tells a different story. He was quoted 6 to 8 week delivery, but after placing a purchase order, the product showed up at his doorstep 2 weeks later.
Despite the recent resurgence in desktops and notebooks sales, both are a declining category, and if you want to stay in the rotating media storage business, you need to be selling to the cloud architecture companies. With Toshiba’s greater reliance on the client market, will we once again be talking about the potential exit of Toshiba from the hard drive business?
Seagate – With much of the hard work of righting the ship Seagate points to an upside in near-line (enterprise) shipments as the primary driver of better margins and revenue. As with other manufacturers, Seagate expects revenue to be flat, but expects continued improvements in margins driven by near-line demand.
Seagate continues to push a build to forecast and order model, but it seems a difficult sell in a market where demand is influenced by a variety of variables that can quickly impact demand. Potentially pitting manufacturer against manufacturer for market share.
Seagate just announced the last iteration (version 6) of their 2.5” 15K enterprise drive, succumbing to the performance power benefits of NAND technology.
General Thoughts – as detailed earlier with Intel and Microsoft reducing their Q 4 notebook and desktop demand, all eyes are on enterprise demand to support HDD pricing. If demand fails to deliver, expect to see prices fall. However, at the macro level, it is inevitable demand and volumes will fall as SSD replaces HDD technology. But, that does not mean rotating media will be eliminated; it just won’t have the prominent role it has had for over the past ten years.
Having said that, we should include SSD in our market brief. With NAND (the raw components used for core storage in SSD) sharing fab capacity with DRAM, expect to see NAND under pressure as DRAM manufacturers switch fab capacity volumes to DRAM support demand. It is not a matter of if we will experience an SSD shortage, but when.
Similar to HDD, the SSD market primary comprises of two markets; the client market and the enterprise price. The client market being about cost per gigabyte while the enterprise market is about performance. With these two perspectives, the long talked pending NAND shortage will play out differently with enterprise customers being impacted with greater severity due to the limited approved vendor lists (AVL) compared to client markets and its many drop in replacements. Already Samsung is extending lead times out for their enterprise SSDs. We are seeing open demand in the spot for enterprise SSD, and we are seeing authorized significantly raising the price and telling us that tomorrow they won’t seem that high. We are seeing plenty of on-hand client SSD, which will temporarily stave off the pending shortage pricing. As we reach month end, price concessions from the inflated pricing may be had for client SSD.
I would love to hear your thoughts.
Please email me at stephen.buckler@horizontechnology.com
