HDD Market to Decline Q/Q in 4Q18 to 88 Million to 90 Million Units – Trendfocus

This is an Executive Brief: CQ4 ’18 HDD TAM Update, by analysts of Trendfocus, Inc.

In November, Trendfocus published its CQ3 ’18 SDAS: HDD Information Service near term forecast, projecting that the CQ4 ’18 HDD TAM would decline slightly Q/Q to 94 million units.

This was based on typical seasonal declines in game console HDD and PC HDD demand, offset slightly by improved retail/external HDD sales.

The forecast also reflected softening hyperscale demand for high-capacity nearline HDDs as well as a modest reduction in performance enterprise HDDs, reflecting consumption of deployed capacity (for nearline) and a re-balance of the performance enterprise supply chain with Western Digital exiting the 10,000/15,000 HDD market in 2019.

Based on the latest data checks, the HDD TAM for CQ4 ’18 has degraded to a current estimated range of 88 million to 90 million HDDs with the following areas of weakness driving additional declines from the original November forecast.

Intel CPU shortage apparently impacting white box PCs
and, therefore, distribution channel demand.
Major PC OEMs have complained of Intel CPU shortages for more than a quarter now, but actual impact to sales remains minimal. Intel appears to have prioritized supply of its latest CPUs to its OEM customers; however, those same OEMs are struggling with aligning the proper mix of CPUs to their current PC portfolio. In general, PC OEMs are meeting demand but have complained of the inability to proactively chase share based on CPU and chipset availability. Some have also claimed that any inventory that Intel has built up to address holiday sales may be exhausted in CQ1 ’19, and even with seasonal CQ1 PC demand declines, CPU supply could be an issue in early 2019. While OEMs may be getting CPU supply this quarter, white box PC manufacturers are facing the brunt of the shortage. As the white box market relies heavily on the distribution channel for storage devices, the cut to HDD demand in distribution indicates the severity of the CPU supply issue in those markets.

Surveillance demand is slowing.
Typically, demand for surveillance HDDs peaks in CQ4, although seasonal swings in this market are more muted than in other markets such as PCs. Several sources have attributed economic slowing in China as the reason for surveillance HDD softness. Whether or not the completion of several domestic Chinese surveillance projects is also causing a drag on demand is unclear, but it could also contribute to the softening demand in this area.

Nearline HDDs tracking a bit lower than forecast.
While utilization of deployed capacity already drove softening nearline demand in CQ3, the impact on CQ4 demand appears a bit larger than the forecast originally indicated. China cloud softening also contributes to this slowing, but the total China hyperscale demand for nearline is a small fraction of the hyperscale nearline demand, let alone the total nearline HDD market. At this point, expectations are very mixed as to the total TAM of this segment in CQ4; however, a TAM of around 12+ million is the current expectation, or about 5% lower than the current forecast. Capacity demand of around 90EBs may still hold, depending on mix, but some are projecting capacity shipments to slip well below that mark.

Slowing in China is an ominous sign.
Widespread reports of economic slowing in China bode poorly for technology demand going into the new year. Some of the impacts have been noted above, but recent news regarding Chinese factories sending home workers now through the lunar new year are a troubling sign that economic slowing within China may spread beyond its borders. Economic uncertainties are already creating nervousness around the globe that may slow technology growth into 2019 and, subsequently, may continue to drag on storage demand.

Trendfocus will publish its preliminary HDD results in early January, with final shipment data in February’s CQ4 ’18 quarterly update and long-term forecasts following public company earnings announcements in late January.