HDD TAM Outperforms in Taipei – Trendfocus

This article was published by Trendfocus, Inc. in an executive brief:

Positive News from Taipei; HDD TAM Outperforms

Our swing through Taipei provided reassurance that underlying demand for PCs is a bit stronger than feared.

With only one week left in the quarter, all of the preliminary data suggests that PC sales will be higher in CQ3. ODM production has been solid in September, and it seems that the month will be, at worst, flat from August, but most likely higher.

For the quarter, ODM production will be up around 8% Q-Q, but with a strong possibility of reaching double digit growth. The positive momentum is expected to linger through October, as ODM orders are relatively flat with September.

There are definitely supply issues that ODMs are contending with. In the HDD space, 500GB and 1TB 5,400rpm mobile HDD supply has been an issue for some PC vendors. As a result, PC companies are trying to substitute with SSDs, but SSD supply is somewhat constrained due to the upsurge in NAND consumption by mobile phones.

Storage procurement specialists are scrambling to make ends meet to get through this rough period. As if those two problems were not enough, PC panel prices have been on the rise since June/July timeframe. Samsung’s decision to convert one of their factories’ TFT production to OLED appears to be one of the main reasons behind this issue.

Other topics that we are keeping an eye on …

• CQ3 TAM may surpass 110 million HDDs: Production and shipments appear to be slightly higher than Trendfocus forecast of 109 million units. However, demand from the game console segment and more solid PC demand (or channel refilling?) are leading us toward a slightly more robust quarter. It is unclear how this may affect the CQ4 TAM, but we are not changing our outlook for the fourth quarter (about 107 million units).
• Glass substrates poised for 95/97mm usage: Future near line HDD designs will, from at least one HDD company, likely use glass media to facilitate a higher disk count to hit higher storage capacities. Significant volume is still at least a year away, but this spotlights how HDD companies are focusing innovation in the capacity-intensive category.  
• SSD attach rate in notebook PCs continues to track to our forecasted amount of 33-34% this year. On the Chinese hyper scale side, Chinese SSD manufacturers continue to give strong efforts in increasing their presence in the SSD market, specifically with PCIe SSD solutions. China hyperscale is a driving force behind much of the PCIe U.2 implementation, with some M.2 volumes coming up from China – although SATA SSDs will continue to be in demand at these same companies.
• NAND supply/demand: There are varying opinions on when NAND supply/demand balance is reestablished, and many factors weigh on the metric. In short, Trendfocus asserts that a rebalancing will not be achieved until 2H ’17. Apple’s smart phone demand, in addition to 3D NAND ramp challenges, will be big factors in NAND supply freeing up, or not. But one certainty is that pricing is going up in Q4 – both for NAND and SSDs, with price increases as high as 10-15%.
• Optane + HDD PCs delayed: The idea of pairing a high-capacity HDD with an Intel Octane (also known as 3DXPoint) in 2016 has been delayed. Some PC OEMs had hoped that a solution would be mature enough to ship in 2016, but a variety of issues have surfaced to push any measurable output to at least 2017.