Unusually High Temperatures in Asia Mirror Hot Storage Demand in Many End Markets

This article was written by Trendfocus, Inc. on September 16, 2024.

Korea and Japan suffered brutally high temperatures and humidity throughout the summer but the uncomfortably sticky heat, while slightly milder than August highs, lingered as the Trendfocus team made its quarterly Asia swing. Here are a few observations.

The supply of many HDD components remains tight as the race to catch up with the jump especially in high-capacity nearline HDD demand continues. Build plan numbers, which as always, should not be equated to expected shipments, remain very high, in the mid-17 million to 18 million range in each of the final 3 calendar quarters of this year. These high numbers continue to signal component suppliers to chase the recovery, but actual shipments will likely achieve lower levels given actual production and test lead times. However many drives HDD suppliers can ship, the industry remains sold out through the end of the year and certain customer upsides that have emerged over the past few months will not be fulfilled until 1CQ25 or even 2CQ25. Most HDD component vendors have shied away from using the word “shortage” to describe their current situation. “Tight” supply was more often heard and for those components that are not facing tightness, vendors said demand was steady. The delays in HAMR qualification at hyperscale companies have resulted in a realignment of build plans, lifting PMR HDD and component volumes to compensate and thus contributing to some of the tight supply.

Essentially all major hyperscale customers have expanded purchases over the past several quarters and the expected growth in 3CQ24 will mark 5 quarters of solid recovery. Some cloud companies will begin to complete their current expansion phases with purchases easing over the coming quarters and individual companies dipping at different times, flattening total shipments into 1H25. We are avoiding the term “digestion phase” as it implies the consumption of excessive inventory buildup – this is not the case as we see it. The HDD industry has successfully implemented build-to-order in this recovering market, keeping supply very tight and selling every drive it can build. Pricing continues to rise modestly, with some larger increases triggered by upside charges for orders above previously committed volumes.

If the market does see a bit of flattening in 1H25 with hyperscale growth cycles playing out and typical seasonal reductions occurring across non-cloud markets, it will give the supply chain a chance to catch up. In the HDD world, at least, non-cloud enterprise recovery will likely gain momentum as expected interest rate cuts re-stimulate the economy in 2025. By 2H25, the next phase of hyperscale growth – albeit a more modest expansion since this year’s massive growth was coming out of an historic slump in 2022 and 2023 – will combine with non-cloud demand improvements for a solid 2H25 for nearline HDDs.

In the NAND and SSD markets, the large increase in pricing following last year’s plunge continues; however, softening consumer demand has already cut cSSD pricing in the channel. NAND vendors would like to continue cSSD price increases to PC OEMs, but rising PC OEM inventory levels for client storage may challenge suppliers’ ability to drive higher pricing into the first half of 2025. Ultimately, end demand for PCs through the 4CQ24 holiday season and Lunar New Year in 1CQ25 will determine cSSD price directions. Some NAND/SSD suppliers are already anticipating possible concessions on price that could occur once the outcome of holiday PC sales has been observed.

eSSD demand remains strong, especially for higher-capacity models for AI related on-premises infrastructure expansion. The boom, which for now is expected to continue through most of next year, is driving SSD vendors to release competitive products at 30TB, 60TB and higher. Once the AI-driven demand is satisfied, then what happens next for enterprise system OEMs? Will the strength of the anticipated recovery of more traditional on-premises IT spending compensate? NAND/SSD vendors still believe that solid demand supports continuing eSSD price increases well into 2025; however, there is some sense that eSSD prices may near their peak in 1H25 given various market uncertainties toward the end of next year.

The hot and sticky weather in Asia has many we spoke with looking forward to autumn days ahead, but we expect that both the HDD and SSD industries would like hot demand and sticky pricing to continue well into the colder months and beyond.