Interesting Dynamics in Cloud Demand for HDDs and SSDs in Asia – Trendfocus

This Executive Brief was posted on March 5, 2018, by analysts from Trendfocus, Inc.‘s team.

Trendfocus Executive Brief:
Asia Tour Reveals Interesting Dynamics in Cloud Demand
for Both HDDs and SSDs
 

The TRENDFOCUS team embarked on its first trip of the year to Asia.

We arrived in Seoul, Korea, and just missed out on seeing the Olympics; however, a couple of us did manage to find and buy some Olympic memorabilia. After a couple key meetings in the Seoul area, the team headed to Tokyo, Japan. Below are some key takeaways and talking points from our trip.

SSDs: After a quarter where we saw healthy growth in almost every category, it seems there is no slowing down for SSD vendors and momentum continues as we come out of the long, turbulent NAND shortage. ‘Do It Yourself’ (DIY) is now a topic firmly placed at the top of the list in many conversations. The concern is for vendors to prepare themselves for companies who may transition from buying complete SSDs to buying just raw NAND, procuring a controller somehow (build, buy, or license) and putting together their own SSD solutions in-house. How aggressively this transition will occur is still up for debate and contingent upon the timing of major hyperscale companies and OEM equipment suppliers. Regardless of the SSD procurement path, one thing is for sure – exabyte growth will continue to skyrocket for enterprise storage – whether it’s shipped as an SSD, or shipped as separate components.

Although client M.2 PCIe is starting to regain momentum after the high pricing environment over the past two years, M.2 SATA will continue to be a requirement for quite a few years. As noted in our reports, in CQ4 ’17, M.2 SATA and M.2 PCIe shipped virtually the same amount.

But including client DFF (which is all SATA), SATA remains the dominant interface for all client SSDs shipped, representing 70% of the client SSD market on a unit basis. Pricing strategies and product tiers based on price and performance will help keep SATA around for the foreseeable future.

On the NAND front, the market is coming off a record CQ4 and calendar year. NAND bits shipped in CQ4 rose 8% sequentially, lifting 2017 bit growth by nearly 38% year over year. The consensus is that 2018 bit growth is poised to rise more than 35% from last year as 64-layer 3D output expands and matures in yield.

The 3D transition finally topped the 50% mark for all NAND suppliers by the final quarter of 2017. The timing of the next generation 96-layer product ramp is mixed, as some are maintaining an aggressive outlook with products expected to ship as early as the end of this year. The more conservative view expects shipments of 96-layer NAND starting in 2019 with significant volumes ramping in all flash-based products by 2020.

Nearline HDD build plan delirium? Speaking of hyperscale demand, after coming off a record quarter of 12.25 million nearline HDD shipments in CQ4 ’17, word out of the HDD supply chain points to significant build plan increases for both CQ1 and CQ2 ’18, with build plan numbers pushing the mid-teens. Certainly, demand for 10TB HDDs remains strong, with indications of its strength noted prior to our Asia travels and all but confirmed during the trip; however, continuous unit demand growth as the market transitions to the next product generation (12TB CMR/14 TB SMR) through the first half of 2018 breaks with historical precedent.

Last year, the transition pause from 8TB to 10TB was exacerbated by key shortages in DRAM and, to a lesser extent, NAND, as well as the timing of major server platform releases by some of the major hyperscale companies.

This year, tempered component shortage fears (although DRAM remains tight) and the lack of new server platform releases may indeed fuel a historically significant continuity in demand from 10TB to 12TB, although the reality of the currently huge build plans may be a bit overly optimistic.

The HDD industry itself is witnessing some key shortages in electronic components, affecting some suppliers more than others and strategic decisions around some product end-of-life timing has caused customer concern over needing to shift supplier shares and secure overall supply. Usually such overheated build plans are a sign of double-ordering – an outcome to be determined over the coming months.

During the trip, the HDD industry marked a milestone with IDEMA Japan (the International Disk Equipment Manufacturers Association) celebrating its 25th anniversary. Highlighting the event held at the classic Imperial Hotel was an encouraging speech by Seagate’s executive chairman, Steve Luczo, who emphasized a transforming but bright future for the HDD industry. Luczo also called the HDD supply chain the best of any industry in the world.

Uncertainties over market demand for storage – both solid-state and HDD-based – are more a matter of degrees of doubt rather than a sky-is-falling fear. Lots of demand for all types of storage exists, as witnessed by the continued growth of the cloud and new smartphone designs pushing ever more capable cameras requiring even higher storage capacities. Transitions in 3D NAND generations have smoothed bit output growth compared to prior process node changes in planar NAND given the tough nature of 3D NAND manufacturing. Slow improvements in yield and the high capital costs to enable each generation also stretches the life of each 3D NAND product.

On the HDD front, the industry is poised to offer a clear path to at least the next three major nearline capacity points – 12TB, 14TB and 16TB – meeting a seemingly insatiable storage demand from hyperscale customers, even if that demand sometimes witnesses small bumps and dips along the way. As a result, parts of the storage device market may face conditions not seen since before the great NAND shortage of 2016/2017, but wait a couple quarters and any imbalances and pricing adjustments may just fuel that next wave in storage demand.