What Happens to WW HDD/SSD Market? (Part One)

What happens to WW HDD/SSD market in bad shape these last quarters?

The facts:

• Global PC shipments numbered 57 million in 1Q23, marking a contraction of 29% compared to the same quarter in 2022, and WW server market spending slightly declining in 2023, according to IDC.
• 1Q23 HDD shipments declined 7% sequentially, according to Trendfocus, with exabytes shipped up only 5%.
• Total HDD shipments in 1Q23 were down 8% compared with 4Q22 (33.5 million vs. 36.3 million), acording to Tom Coughlin, storage analyst and consultant, president of Coughlin Associates.
• NAND and SSD markets continue to struggle in 1Q23, according to Trendfocus, with total SSD units down 15% and total exabytes down 13%.
• Total NAND flash revenue falls 16% in 1Q23, according to TrendForce.

What are the possible reasons of these bad figures?

1/ most of storage devices are attached to PC and servers whose market is declining

2/ end users delete data and files on their computer to avoid to buy another drive,

3/ same for videos and images on NAND memories into portable phones

4/ increasing use of de-dupe and compression

Individually or collectively, these reasons – but the first one – are not convincing, and it’s hard to understand really why the HDD/SSD/NAND market is in such a bad shape as, historically, storage appetite never decreased in the world and if this bad trend will continue the next years. Furthermore, prices par gigabyte of HDD are very low and they are decreasing for NAND chips and consequently SSDs, flash devices and USB keys.

Comments from John Chen, VP, Trendfocus

Overheated storage demand in 2021 caused by pandemic factors not only faced post-Covid easing, but the rapid and drastic pullback resulting from geopolitical factors throwing the global economy into turmoil amplified the downturn for OEM and hyperscale storage spending through 2022 and 2023. With continued uncertainties in the economic outlook over the next few quarters, cloud and on-premises IT customers will continue to remain cautious until a clear recovery begins to take hold, possibly starting in 2024.

HDD suppliers have reacted by reducing production output, re-focusing product roadmaps and sizing operations to weather the current conditions and to emerge in a recovered market as more efficient companies. Data growth will continue to drive storage demand and as generative AI develops beyond text-based large language models into faster growth of rich media content (assuming the market can deal with the inevitable negative consequences of AI in fueling propaganda and falsehoods passed off as truth), the need for data storage could accelerate above current growth patterns.

Beyond the current demand downturn driving significant NAND oversupply, the NAND flash industry will also have to reconcile the effects of saturating smartphone and PC SSD attach rates along with few new applications emerging to absorb historical NAND growth rates. NAND vendors are now faced with increasing average capacity per device, invariably a slower growth path than penetrating new markets and applications. Enterprise flash growth, much like nearline HDDs, will eventually recover to drive sustained demand to address long-term data growth. In the case of rapid AI deployment, performance storage needs for AI model training could positively impact flash demand sooner rather than later.

Comments from Tom Coughlin, storage analyst and consultant, president of Coughlin Associates:

Here are reasons I think for the current general storage slowdown:
1) The Covid pandemic caused a surge in demand for storage, computing and networking to support work at home, both in consumer devices and in data centers. With the end of Covid, that demand has slackened.
2) Governments injected lots of money into the economy during Covid. This resulted in significant inflation which led to governments making money tight this year, increasing interest rates which then discouraged spending and resulted in less demand for consumer products and a decline in the economy.
3) Consumer product demand declined with economic uncertainty, driving down purchases for consumer products
4) Data centers had stocked up on storage devices based upon projections of demand during Covid and because of concerns with supply (you may recall, supply chains were disrupted) up until early in 2022.
5) Although demand for computing, networking and storage in data centers is expected to grow considerably due to demands for various AI, IoT and other developments, it has taken a while to burn off the excess inventory that many of the larger data centers had.
6) Another factor is the boom and bust cycle for memory devices. This used to be true for HDDs as well, but that has been reduced in general with industry consolidation (HDD manufacturers don’t need to build new facilities and can bring their production up and down more readily than NAND manufacturers). All the NAND suppliers build new fabs at the same time (when they are making money) and then when this new capacity comes on line – in say 2 years, the market quickly gets flooded and the prices plummet. We are currently in one of those bust periods for NAND and other memory, which, combined with reduced demand for the reasons given above, is causing a fair amount of financial pain for the NAND manufacturers.
7) ASPs for HDDs are near their peak. The lowering price of HDD storage (in $/TB) is due to higher capacities for shipping HDDs. Note that as consumer HDD demand decreases data center demand is increasing and they mostly buy larger capacity (and thus lower $/TB) but more expensive per unit HDDs. However, many data centers are still burning off inventory they hold and this has restrained the sale of storage to data centers.
8) Data reduction efforts may also be having some impact, as you point out, but I think the bigger factors in the decline last year and so far this year are due to economic factors outlined above.

Despite all these negative factors currently in play, much of the world’s economy and economic growth is tied to increasing technology. These new business opportunities will drive storage, computing and networking demand and thus reverse the current situation. I believe that this will start to happen in 2H23.

Comments from Jeff Janukowicz, manager of IDC Corp.‘s team and covering storage and memory

During the pandemic, supply chain challenges became commonplace. As a result, many PC OEMs, server and storage OEMs, and cloud customers began to carry excess inventory to mitigate supply chain risk. 

Over the past few quarters, we’ve seen supply chains beginning to normalize resulting in companies now becoming less risk averse and viewing inventory levels as excessive for SSDs and HDDs.

At the same time, the overall demand outlook has weekend due to macroeconomic factors, resulting in a lower demand. 

For the SSD and HDD market this has resulted in a double whammy of an inventory correction coupled with slower end market demand.
 
The industry will face difficulties in managing the immediate future, yet the long-term demand for data growth will continue and this will help will facilitate the recovery of the HDD and SSD markets.