Mood at Storage Device Makers and Supply Chain Companies in Asia Remained Glum

This is an Executive Brief of Trendfocus, Inc.‘s Information Services.

Storage Supply Chain Resigned to Mid-2024 Recovery

During Trendfocus’ trip to Asia this month, the mood at storage device makers and supply chain companies remained glum as end demand shows no clear signs of recovery this year. The only difference this time compared to Asia swings earlier in the year is that most are resigned to the poor market conditions for now. Here are a few thoughts, summarized by storage technology.
 
HDDs
While 2023 remains a difficult year for HDD shipments, there are early signs of some supply chain demand pickup late this year which will improve in early 2024. This mirrors Trendfocus’ forecast of very slight increases in aggregate large cloud demand beginning as the year comes to a close. Plenty of weak spots continue to drag on the HDD market, especially in China. China’s economic slowing has impacted IT spending across the board with some attributing the delay in the country’s massive initiative to expand data centers in the western part of China as a major contributor. Locating data centers in western China to take advantage of land and power resources to provide computing power to the more populous eastern part of the country is part of its “Eastern Data Western Calculation” project. Some suppliers have noted that a recovery in China will likely push out into 2H24 (similar timing to the commencement of a broader recovery Trendfocus is forecasting for the rest of the market); however, suppliers also expect those second-half improvements in China may weaken further.

For now, there are plenty of components available to address whatever HDD demand exists through 1H24. Next year promises a few significant transitions, including Seagate’s HAMR ramp to some CSPs and the emergence of an 11-disk drive by others to push current PMR HDD capacities beyond 24TB. While Trendfocus’ Revised Long-Term Forecast, published in August 2023, assumes 2 HAMR suppliers by 2026, there remains behind-the-scenes activity in supplying materials to support HDD media thickness of less than the current 0.5mm. The thinking is that a future 12-disk HDD remains a possibility as a backup plan for some companies should their HAMR efforts falter.
 
Tape
Tape, while a much smaller enterprise storage market than HDD and flash, has so far weathered the downturn fairly well. 2022 capacity shipments held stable and did not suffer the downturn seen in other storage technologies. More importantly, the faster growing cloud portion of the tape market looks like it may achieve reasonable growth in 2023, reaching the forecasted numbers in Trendfocus’ Tape and Archive Storage Service (TASS) report published in June. The on-premises market remains slightly at risk, though, as the growth in tape drive shipments expected this year will likely fail to reach forecasted levels.

While cloud tape growth should continue in 2024, the most recent data points indicate that next year’s exabyte rise is moderating from the growth rates witnessed over the past few years, but new cloud customers may reach the production phase for tape deployment late next year, a factor that could fuel more robust capacity increases in 2025.

NAND Flash and SSDs
Unfortunately, there is general agreement that the downturn we have been in continues, and conditions are unlikely to improve until 2024. Any increases in shipments enjoyed in 2CQ23, specifically for client SSDs, were most likely a one-off situation where various industry stakeholders were hoping there will be a holiday push for PCs. There is no concrete evidence to support this idea, but it seems optimism persists.

For enterprise, U.2 Gen5 continues to be the PCIe form factor (and interface gen) of choice for the China market. This will continue to be at odds with deployments of E3.S in other regions of the world, further complicating choices in the coming years as to which technologies companies will choose to support for the longer term. That said, even with the introduction of E3.S, U.2 will have a long life ahead.

From a market rebound perspective, the mindset many industry participants had a year ago with ‘hope’ being the only plan for 2H23 seems to be the new, updated strategy for 2H24. Hope is now the plan for that timeframe. With all the early production cuts from NAND vendors, a lack of supply has now entered the market. We have even seen some additional increases in production cuts after all the 4CQ22 and 2CQ23 announcements and execution. Now it is up to the end markets, whether it be traditional enterprise, PC OEM, or data center services to hopefully experience an uptick in end customer demand. Unfortunately, the most common opinion currently is that this will not materialize until the middle to 2H24. Once demand does return, however, the market will benefit from a couple of factors. First, when the PC market rebounds, the average capacity shipped will be higher than before the downturn. Most major customers have accelerated their move to higher densities as a result of the very favorable pricing seen over the past several quarters. Second, transitions to new form factors for PCIe will provide the benefit of certain markets moving to higher-density solutions, helping push more exabytes. 

It has been a challenging year and a half for all market participants. It will likely be another tough few quarters. But the return of demand will certainly occur and when it does, one can only hope that industry players have learned from history and there is a bit more discipline in the market – something that would be beneficial for all parties involved.