Report on China Flash Market Summit – Trendfocus

This is an Executive Brief from Trendfocus, Inc.:

NAND Market Stabilization 
Notes from China and the China Flash Market Summit

On last September 19, the Trendfocus team was in Shenzhen to attend the one-day China Flash Market Summit or CFMS.

The list of speakers was extensive with executives from major flash vendors including Samsung, Western Digital, Toshiba (soon to be re-named Kioxia), Micron and Intel joining controller companies such as Marvell, Phison and Silicon Motion and combining with a long list of China-based companies, including Tsinghua Unigroup, Longsys, Tencent, GigaDivice and others to round out a full day of presentations.
 
The event was standing room only in the large hall at the Intercontinental Hotel in Shenzhen with the kind lighting effects, visual displays and pounding music more indicative of a product announcement event, but an apparently standard set of production values for events held here in China.

While some of the presentations from non-Chinese companies repeated those at last August’s Flash Memory Summit in USA, some notable highlights that received favorable audience reactions included the following:

1. Samsung reiterated its commitment to ever-higher layer counts for future versions of its V-NAND out to V10. Without committing to an exact date, V-NAND promises to move from its 92-layer V6 today up to potentially more than 500 layers by V10. Samsung memory VP, Sohn Hangu, touted that China’s consumption of NAND will grow over the next several years to absorbing nearly half the world’s NAND in some applications such as mobile devices.
2. Steven Craig, SVP and GM of China for Western Digital presented the company’s Zoned Name Space (ZNS) for improving SSD performance. Serializing data sent from the host to the device, a scheme aligned with host-managed SMR-based HDDs, can overcome some of the performance reductions from bit-density boosting technologies such as QLC NAND. Maintaining a unique position in the storage industry by offering both HDD and NAND-based products, Craig provided a complementary view of the coexistence of HDDs and SSDs over the long term.
3. Toshiba Memory Corporation’s technology executive, Shiganori Yanagi, claimed that while there is not enough storage available globally to store all the data created, high-speed storage such as NAND could process created data quickly, extracting value from that data without storing all of it for the long-term. TMC targets to offer a full portfolio of client and enterprise SSD products and expects that the market for EDSFF NVMe SSDs will begin to emerge in 2021.
4. Most of the China-based technology companies illustrated the rapid emergence of China to produce solid-state storage and memory products that will eventually cover all categories and applications.

Trendfocus also engaged with several meetings with storage companies to pulse the current sentiment of the market conditions for both SSDs and HDDs. The largest concerns voiced by those seeking SSDs have been the recent price hikes pushed by flash storage vendors, driving up 4CQ19 SSD pricing by the 10% to 15% level that analysts have tracked over the recent weeks. SSD demand remains strong, especially in client PCs as attach rates continue to rise.

The 4CQ price hikes seemed to have little effect in cutting demand for now as computing vendors have benefitted over the past year from plunging pricing driven by the NAND oversupply situation. Earlier in 3CQ, concerns arose over de-commitments to SSD supply from some providers, but at least some of those de-commitments have faded away with some system vendors claiming that supply has risen to meet the rising demand. The supply continuity in the face of rising prices points to a continued burn-down of significant NAND inventory while, at the same time, NAND and SSD vendors attempt to regain some level of profitability after the pricing bloodbath witnessed over the past six quarters.
 
Despite the relatively nascent overall market for QLC-based SSDs, 512GB client SSDs based on the high density, but lower endurance and lower performing NAND flash has driven pricing to aggressive levels. Even with the coming price increases, 512GB QLC client SSDs are leading the charge to breach the $50 level. OEMs are still working to define where QLC SSDs fit best in client PC storage and may eventually occupy a low-cost tier below that of so-called value PCIe designs which are now capturing majority share in PCs with SSDs.
 
China government regulations on encryption are also providing opportunities to domestic designs for encrypted products. The Office of State Commercial Cryptography Administration (OSCCA) requires its approval over any encryption technologies used in China. OSCCA-approved encryption is also unique to the China market and the office has essentially required all OSCCA-enabled products to be produced only by Chinese companies within China. This means that SSD controllers offering encryption for SSDs sold to commercial entities such as banks and corporations can only be designed and sold by domestic Chinese companies. 
 
Moving into 4CQ19, system vendors are preparing for November 11 sales – a Black Friday-like event that occurs in China each year.

While OEMs remain optimistic for seasonally higher sales, concerns over economic slowing in China may impact consumer enthusiasm this year and should be an event to watch come November.

As it relates to storage demand, Trendfocus noted a measurable pull-in of shipments into 2CQ19 due to ongoing U.S./China trade tensions and tariffs, both threatened and already in place. In addition, potential U.S. trade restrictions of technology sales to some Chinese companies also forced those companies to buy-ahead in 2CQ19.

Build-ahead of PC systems in 2CQ19 did support unseasonably stronger client HDD sales while surveillance vendors also stockpiled storage devices due to the possible future trade restrictions. In Trendfocus’s 2CQ19 quarterly update for HDDs, the pull-in of shipments into Trendfocus combined with slowing global economic growth resulting in a tempering of our forecast for 2H19, which will likely track only muted seasonality. Our checks within China this week validated the forecast direction with client HDD and surveillance demand softening in the current quarter. In addition, the weaker China cloud demand for nearline appears to be continuing from the prior few quarters with the transition to 12TB still yet-to-come.