Storage and memory demand in the third quarter drops significantly, a sign of an ongoing correction?

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This article contains information on the C3Q 2022 Hard Drive Industry from the latest Digital Storage Technology Newsletter as well as material from an upcoming report by my colleague, Jim Handy. Ultimately, HDDs had a negative quarter, but the correction in the memory market, including NAND flash (the storage medium for SSDs) was even more severe.

Total HDD shipments at C3Q 2022 were down 13.9% from C2Q 2022 (38.4M vs. 44.6M). This continues the downward trend since Q1 2022. Total exabytes shipped at C3Q 2022 decreased by approximately 37% compared to C2Q 2022. Nearline HDDs decreased by approximately 13.8 Q2Q. These results are shown in the figure below.

The decline was driven by slower growth in convenience hard drives as well as a continued decline in legacy hard drives. Note that convenience hard drives (high capacity hard drives used for enterprise and data center applications) represent a much larger proportion of the total hard drive market than they did at the end of 2021. We expect this trend to continue as SSDs continue to take market share from hard drives for PCs, consumer applications and high performance.

The figure below shows Seagate and Western Digital HDD revenues and their combined revenue quarter by quarter in 2020 through the last quarter. Total revenue declined approximately 16.6% in the second quarter of C3Q 2022 for these two companies. Seagate experienced an even steeper decline in revenue in Q3rd quarter than WDC, which has not been the case in the previous two years.

We adjusted our model for hard disk drive shipments for the remainder of 2022. We started the year expecting hard disk drive shipments to be down about 0.6% from 2021 (at 232 million units), but we now expect a decline of around 36% year-on-year for 2022, the largest annual decline in hard drive shipments in many years.

Average selling prices for hard drives (ASP) have generally increased over the past decade. WDC ASPs continued to rise from $120 to $125 in the quarter, but Seagate ASPs were down from $121.29 to $112.90 in Q2Q resulting in a few percent decline of total projected ASPs for the quarter. This would mean that Seagate did not ship such a high proportion of high-capacity (and therefore higher-priced) hard drives in the last quarter.

The figure below shows our projections for median, high, and low hard disk drive shipment through 2027. Disk and head shipments (important components of hard disk drives) are also expected to take a hit in 2022 by compared to 2021.

David Goeckeler of WDC said, “Continued momentum with US cloud customers and accelerated adoption of SMR hard drives was offset by weakness in other capacity enterprise product channels and consumer demand for hard drives. . Shipments of capacity enterprise drives based on SMR technologies exceeded 25% of this category, a quarter above our expectations. We now expect SMR to account for over 40% of our Exabytes of enterprise capacity shipment by exiting FY2023…SMR adoption has resulted in a 19% sequential increase and a 21% year-over-year increase in average capacity to 17 terabytes per capacity enterprise drive, and our 20-terabyte drive exabyte shipments increased more than 150% sequentially.

He went on to say that “our US cloud customers have begun to significantly reduce their inventory of hard drives as well as other components for building their data centers. This, combined with still weak demand in Chinese markets, will impact near-term demand over the coming quarters. »

Seagate’s Dave Mosley said that more than 40% of the mass capacity hard drives the company has shipped are 20+TB and by mid-2023 it will be shipping HAMR hard drives with 30+TB. also stated, “We are extending this product family by using conventional CMR technology in the mid-20 terabyte range, which also offers SMR capabilities in the upper 20 terabyte range. Development of our 30+ terabyte HAMR-based platform remains firmly on track… We continue to execute our development plans meeting key milestones, including reliability metrics and density gains overhead which also positions us to expand disk capacities well beyond 30 terabytes.

Jim Handy from Objective Analysis provided me with the figure below showing that C3Q 2022 was also not suitable for NAND flash and DRAM. Estimated total revenue (Kioxia had not yet released a report) would have fallen 27% in C3Q 2022 compared to the previous quarter.

Jim says the causes of this drop in memory demand are:

With the return to in-person work, schooling and events, internet services growth has slowed following its COVID-induced surge, so large-scale data centers are reducing orders and digesting excess inventory

China’s COVID lockdowns are stifling consumer spending in that country’s major urban centers

· The combination of interest rate hikes and the war in Ukraine has slowed the global economy, leading to lower consumer confidence. This has reduced consumer spending worldwide

The graph below shows our updated projection for HDD, SSD, and tape capacity shipments from 2012 to 2027. You can see a significant drop in total capacity shipments for this year. At this time, we expect some growth in capacity shipments for storage devices in 2023, but this is dependent on market recovery in early 2023.

Hard disk drive capacity and shipments were down approximately 37% and approximately 14% respectively in C3Q 2022 compared to the prior quarter. Memory, including NAND flash memory, was down about 27% in capacity shipments over the same period. Several factors are responsible for the decline in storage demand, including the economy restricting consumer demand and slowing storage demand in major data centers.

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