2019 to Be Challenging Year for NAND Vendors – Trendfocus

This is an Executive Brief by Trendfocus, Inc.

Asia Coverage Through October in Korea, Japan, Singapore
 

The Trendfocus team took a swing through Korea during the first week of October and, not surprisingly, there is definitely concern about the NAND (over) supply situation.

Given the positive momentum of the 3D transition (48 layer to 64 layer), bit output is growing at a pace that is surpassing market demand. The recent NAND price decline is a clear indication of this situation. NAND prices have retreated to where they were before the short supply situation started seven to eight quarters ago.

Bit growth is on pace to push year-over-year growth to above 30%, in the range of our forecast of 37%-38% – but not in the >40% range projected by some NAND companies.

NAND suppliers are forging ahead with 96 layer and QLC development, and parts are expected to be in mass production, albeit at modest levels, in 2019. If this transition hits the milestone targets, it could exacerbate the supply/demand imbalance situation.

With the potential NAND oversupply, and already rumored healthy takedowns for 4Q18 pricing for SSDs, 2019 is shaping up to be a challenging year for vendors trying to maintain healthy business. It seems like it was years ago – but it was only a few quarters ago – that the NAND shortage was here and margins were fantastic for anyone with NAND or an SSD to sell into the market. Not only is the shortage definitely over, but added to the concerns of oversupply mentioned above, we are starting to hear that demand in 2019 may not be as strong as originally anticipated. Time will tell what this does to already aggressive price drops – and we still have another quarter to go in 2018. We are hearing some price drops for 4Q18 may be close to double-digit declines, further eclipsing the price hikes we saw through the NAND shortage.

Discussions of future transitions centered around two main topics – DIY (or self-builds) and how aggressively SAS demand will migrate to PCIe in the coming years.

For DIY, there is general agreement that transitions away for finished goods SSD sales will not be impacted as aggressively as some had originally thought. Competing (already-built) solutions, and varying strategies may help SSDs keep volumes at higher levels even as some companies go down the path of attempting to do self-builds. One thing is clear: SSD sales for PCIe will continue to grow throughout the forecast period.

For certain storage networking companies, plans for transitioning from SAS to PCIe may not happen as aggressively as some might think. For some vendors selling these solutions to system builders, tiering and pricing strategies, both at the SSD vendor level and at the system level, will most likely maintain a pricing strategy tiering higher performing solutions and higher-tier pricing, thus keeping lower performance solutions (like SAS) around longer that some would like, if not actually continuing to grow in exabytes.

Strap in and enjoy the ride for the continued price wars.