HDD Demand to Slump Sharply Through at Least 1Q23

This is Trendfocus, Inc.‘s Information Services, Executive Brief.

Storage Demand to Slump Sharply Through at Least 1CQ23

Following public releases and comments by both Seagate and Western Digital noting a greater slowdown in HDD demand compared to expectations laid out during 2CQ22 earnings calls, Trendfocus has picked up additional details indicating the potential magnitude of the upcoming reductions.

HDD companies are indeed taking quick actions to reduce HDD builds to re-balance to reduced demand while tightly managing supplier-owned inventory. As noted by some HDD companies, customer inventory buildup will now take at least until the end of the year to clear out, compared to earlier views that most inventory would have been utilized by the end of 3CQ22. In addition, significant component shortages are weighing on some large hyperscale companies, preventing the deployment of systems into data centers and thus reducing storage device absorption. In the case of certain cloud companies, economic slowing has reduced some storage demand and in other cases, heavy purchases of HDDs over the past couple of quarters will trigger inventory digestion that will drag on into early 2023.

Large US cloud demand in aggregate was originally expected to remain the one bright spot of HDD demand when Trendfocus published its 2CQ22 forecasts in August, even as component constraints limited potential growth. In recent industry checks, storage demand from this sector will likely drop sharply in 4CQ22 and 1CQ23, after weakening signals emerged during the second half of 3CQ22. At this point, US hyperscale companies may once again begin to expand in late 1CQ23 with improved component supplies, new capacity transitions ramping up and inventory digestion largely completed by that time.

For the entire HDD market, however, following shipment TAMs of 53 million and 45 million in 1CQ22 and 2CQ22, respectively, the HDD supply chain has witnessed sharp build plan cuts for the remainder of the year – around the mid-30 million mark in both 3CQ and now 4CQ22. Depending on how HDD companies incentivize end-of-quarter sales over the next week, the 3CQ TAM will likely drop below 40 million units, while CQ4 shipments could post further reductions, resulting in a 2022 TAM falling to the 170 million range, sharply lower than the 196 million total forecasted in Trendfocus’ 2CQ quarterly updates.

This week, the Trendfocus team will embark on its first in-person Asia trip since the pre-pandemic days of late 2019. The whipsaw nature of demand throughout the pandemic and now a period of economic weakness due, in part, to geo-political uncertainties is forcing a rapid industry response to the collapse of both HDD and flash demand.