Thailand Instability Worrying HDD Buyers – Trendfocus

This article is an executive brief by Trendfocus, Inc.:
2014 HDD forecast increase? Thailand instability worrying HDD buyers,
while 2H ’14 HDD build plans aggressive

Thailand political situation not affecting HDD industry, yet anyway: While it is a bit early to see the impact of the military coup in Thailand, indications from both HDD and automotive supply chains are that it is “business as usual.” We will be watching and reporting on any changes, but supply continuity appears to be fine.

5.25″ cold storage HDDs: Discussions centering on 5.25″ form factor HDDs for cloud/hyperscale/ enterprise (cold?) continue through the supply chain, but activity is primarily between HDD suppliers and their customers. Making larger HDDs is not a trivial pursuit, and as we have written before, the supply chain has little appetite for investment in a new form factor. HDD companies interested in making a 5.25″ drive may have to truly ‘partner’ with suppliers to help offset tooling/engineering costs and to mitigate risk. We are watching this closely, and don’t yet see widespread support by either the supply chain or HDD customers. Additionally, making larger HDDs might open the possibility of selling “cold storage racks” that are purpose-built for cold storage applications.

2H HDD builds looking a bit top-heavy, but reports from the HDD supply chain indicate that the combined HDD production schedule for the second half of 2014 is outstripping perceived demand. While Trendfocus has forecast a mild uplift in second-half HDD shipments, production plans are about 20 million units beyond our forecasted demand. This is not our first rodeo and we understand builds can be inflated to extract price concessions from suppliers – so we are unsure how real these plans are.

But three key points emerge from this that could positively change forecast for 2014:

• The gaming sector is outperforming our early year expectations. While there are some wildly high numbers being claimed for Sony’s PlayStation HDD consumption, it is clear that our gaming HDD forecast for CQ2 and CQ3 is several million units light. We expect higher-than-forecast HDD shipments to game consoles both in CQ2 and CQ3 before fading seasonally in CQ4.
• Notebook builds have been stronger, year on year, and demand from game consoles is solid and looks like it will sustain for much of the year. Applying some sensitivity analysis to our 2H ’14 forecast, focusing on enterprise/capacity-optimized as well as both desktop and notebook PC HDD demand, Trendfocus’s forecast might be a bit conservative. Depending on how seasonally strong notebook and desktop demand turns out to be, it could be a few million additional HDDs shipped. We expect that CQ3 – being 14 week quarter for Seagate and WDC – could be the high point in HDD shipments, so most upside to our existing forecast will likely be shipped then.
• The expected nearline ‘recovery’ needs to happen, but we expect only a mild uplift in shipments in CQ3. Too early to tell about CQ4, as many of the top hyperscale/data center consumers are prone to giving little/no forward TAM info.

In summary, positive indicators today may result in incremental shipments of 5 million to 7 million HDDs for the year, which means the HDD market would post a Y/Y growth, albeit a modest one.