HDD Production, Forecasted at 108 Million Units, to Reach 117 Million in 4Q16? – Trendfocus

This is an Executive Brief published by Trendfocus, Inc.

HDD production to reach 117 million in CQ4? Our CQ4 ’16 HDD shipment forecast was for approximately 108 million units. However, the collective production may be as high as 117 million.

The magnitude of production-shipment gap has not been seen for several quarters, and the fact that as of early December, few signs of an impending build plan cut may point to several possibilities.

• First, actual HDD shipments may be tracking ahead of forecast, a pleasant upside fueled by steady PC shipments and the side effect of higher SSD prices which may have blunted SSD attach rate growth to a small degree.
• Second, HDD companies may be building finished goods inventories in advance of a 1CQ17 demand slowdown and possible factory consolidations. Nearline drive shipments will likely hit or approach another record high with continued hyperscale and relatively solid OEM system demand driving unit volumes simultaneously as the ramp of 10TB nearline accelerates.

HDD inventory concerns have been essentially non-existent throughout this year as cautious builds were met with marginally better orders for HDDs across a broad range of segments. As such, indications of build plans tracking ahead of even a slight improved TAM outlook for 4CQ16 have been challenging to fully quantify.

NAND supply tightness update
It is no secret that NAND supplies remain on allocation with priorities going to large smartphone contracts, enterprise SSDs, data center SSDs, notebook PC OEMs, and then aftermarket client SSDs – most of the time in that order. While 1CQ17 would typically track to seasonally softer device demand that would relieve pressure on NAND supply, it appears that major China smartphone companies are following in the footsteps of Apple’s move this year to double smartphone storage capacity offerings.

Even if handset demand remains flat into early 2017, this upward mix will keep NAND supply tight through much of next year. The next key checkpoint is the availability of next-generation 3D NAND, which should begin to ramp up in 1H17. Despite this timing, SSDs based on 64-layer (or higher) 3D NAND have a very tight window for qualifications in order to ship in volume for OEM PC makers in 2H17. A smooth 3D ramp by multiple suppliers may help overall NAND bit availability, but if SSD designs based on the new NAND are delayed, then SSD companies could miss the window for next year’s back-to-school and holiday season sales.

Client SSD prices have risen 5%-15% to major OEMs. NAND supply on allocation has invariably driven price increases across the board on a variety of NAND-based devices. For client SSDs, prices have jumped 5% to 15% to most PC OEMs over the past quarter and pricing has the potential to head upward, again, through the first half of next year. At this point, OEMs are paying the higher prices in order to secure supply for their flagship notebook PC models, many of which can only take an SSD due to system designs; however, rising prices threaten to soften the increase in SSD attach rates forecasted into 2017. Some PC OEMs have realized that many of their mid-range consumer notebook PCs that maintain a drive bay will invariably be shipping with an HDD next year given the pricing and supply dynamics.