HDD Build Plan Cuts Signal Impact of Covid-19 on Economic Growth, Says Trendfocus

This is an Executive Brief by Trendfocus, Inc.:

HDD Build Plan Cuts Signal Impact of Covid-19 on Economic Growth

Forecasting HDD demand following the onslaught of impacts resulting from the Covid-19 pandemic has been challenging, to say the least. With CQ1 results influenced by a combination of reduced supply, falling consumer demand and accelerated cloud purchases, total HDD shipments managed to come in at nearly 68 million, or just slightly behind Trendfocus’ pre-pandemic forecast of 69 million and change.

The TAM outlook for CQ2 was relatively flat to CQ1 under the assumption that some markets, such as surveillance, would recover from the CQ1 trough, offset by weakening client HDD demand and a reduced enterprise HDD outlook driven primarily by corporate spending weakness and cautiousness projected by some large cloud companies.

Trendfocus has shied-away from calling for a large nearline “digestion” phase following several quarters of record or near-record shipments, followed by the huge all-time record spike of CQ1 ’20. China cloud, although small relative to the US hyperscale companies, continued to strengthen into CQ2 while the staggered capacity transitions of the big tier-1 US cloud companies injected some expected lumpiness into current quarter demand. A large pull-back from the current nearline forecast may arise later in the year if early signs of economic bottoming do not result in some recovery by then.

In the current quarter of CQ2 ’20, HDD build plans have fallen in recent weeks to around 60 million and may inch a bit lower in the coming weeks. The largest cuts have focused on client 3.5″ and 2.5″ HDDs, reflecting continued retail weakness and the lack of any leverage from a slight recovery in PC demand owing to growing SSD attach rates. Performance enterprise builds have fallen sharply as OEMs see weaker corporate IT demand and following a CQ1 where OEMs likely stocked up on performance enterprise HDDs in the face of uncertain supply caused by pandemic-driven factory output reductions.

Noting that build plans usually do not tie with final shipment results and some amount of HDD inventory always carries over from the prior quarter, the 60 million (or less) build plan currently circulating around the HDD supply chain makes a 68 million shipment forecast unlikely.