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HDD Shipments Hit Bottom in 2Q15 – Trendfocus

Should bounce back in 2H15.

Trendfocus, Inc.‘s preliminary estimate of the HDD industry’s cumulative shipments were lower than expected, even as of 1-2 weeks ago.

It is difficult to estimate output just days after the close of a quarter, as there are end-of-quarter shifts in revenue/shipment recognition.

The end of CQ1 saw a few million drives shipped ‘ahead’ due to attractive rebates, but there was evidently less of this going on at the end of CQ2 (or, what was shipped ahead at the end of CQ1 effectively reduced demand accordingly in CQ2.)

A few thoughts for consideration heading into 2H 2015:

  • It’s really still about PCs: Approximately 75% of HDDs shipped in the first half of 2015 were included in personal computers (with a portion of that going to SMB NAS and the channel). Incrementally, close to 15% of HDDs are shipped as USB-attached external units, the vast majority of which are used in conjunction with a PC. So, as the PC business sags, perhaps by 10% or so in 2015, it will negatively impact demand for HDDs. There will be a seasonal uplift in PC shipments in the second half of the year – but the extent of the increase is challenging to forecast accurately given shifting consumer spending trends and the unclear effect of Windows 10 on consumer PC demand during the busier second half of the year.
  • Impact of SSDs still largely limited to commercial notebooks: It is true that SSDs are affecting demand for mobile HDDs, but primarily in the commercial notebook PC segment. Consumers have not bought into the concept of far less (but faster) storage at higher per-gigabyte prices. Low-cost, lower-performing SSDs with under 200GB of storage are being offered in consumer notebooks, but sales have been unsurprisingly weak.
  • Surprise! SSDs are not killing enterprise HDDs: If memory serves, the SSD supply base promised the death of performance enterprise HDDs some years ago. However, reality has intruded…. Since 2007, performance enterprise HDD shipments have actually grown from under 30 million to an estimated 34 million in 2015. This market will be impaired by SSDs over the long term, but for the time being, shipments of 10,000 and 15,000rpm drives are solid and SSD shipments, at worst, have perhaps blunted the growth of performance HDDs over the last several years.
  • Nearline demand continues to expand: Although 1H ’15 capacity enterprise drive shipments pulled back slightly as forecasted, orders are expected to recover modestly in the second half. 8TB drives will be shipping in measurable quantities, and data center build outs – while somewhat non-linear – continue.

PC OEMs have indeed cut inventory in the first half of 2015 in order to reduce the risk of carrying obsolete Windows 8.1 models. With Windows 10 launching late this month, the upswing in new builds may be more of a mid-to-late CQ3 phenomenon that will miss much of the back-to-school activity; however, even assuming only tepid consumer PC demand, currently lean inventory of systems and storage devices should return to more normal levels.

In addition to the inventory refill, only modest seasonal increases in consumer PC sales should drive second half growth of desktop and mobile HDDs, compared to the dismal first half results.

With other segments – enterprise and CE – largely holding to forecasted levels in the first half of the year with additional growth projected in the second half of 2015, the total HDD market has almost nowhere else to go but up for CQ3 and CQ4 ’15.

HDD vendors will likely project very modest TAM projections and will cut operating expenses, but even slight upticks in consumer PC interest may drive HDD TAMs beyond the the expected cautious outlook.

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