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Third Quarter Storage & Memory Demand Drops Significantly, Sign Of Ongoing Correction?

This article contains information on the C3Q 2022 hard disk drive industry from the most recent Digital Storage Technology Newsletter as well as some material from an upcoming report by my colleague, Jim Handy. Bottom line is that HDDs experienced a negative quarter but the correction for the memory market, including NAND flash (the storage media in SSDs) was even more severe.

Total HDD shipments in C3Q 2022 were down 13.9% compared with C2Q 2022 (38.4 M versus 44.6M). This continues the downward trend since Q1 2022. Total exabytes shipped in C3Q 2022 were down about 37% from C2Q 2022. Nearline HDDs were down about 13.8 Q2Q. These results are shown in the figure below.

The decline was driven by slower nearline HDD growth as well as a continued decline in legacy HDDs. Note that nearline HDDs (high-capacity HDDs used for enterprise and data center applications) are a much greater proportion of the total HDD market than they were at the end of 2021. We expect this trend to continue as SSDs continue to take market share away from HDDs for PC, consumer and high-performance applications.

The figure below shows Seagate and Western Digital HDD revenues and their combined revenues quarter by quarter in 2020 through this last quarter. Total revenues were down about 16.6% in C3Q 2022 Q2Q to quarter for these two companies.Seagate experienced an even steeper drop in revenue in the 3rd quarter than WDC, which has not been the case for the prior two years.

We have adjusted our model for HDD unit shipments for the rest of 2022. We started the year thinking HDD shipments would be down about 0.6% from 2021 (at about 232M units) but we are now projecting about a 36% drop YoY for 2022, the most significant annual decline in HDD shipments for many years.

HDD average sales prices (ASPs) had been rising in general over the last decade. WDC ASPs continued to rise, going from $120 to $125 over the quarter, but Seagate ASPs declined from $121.29 to $112.90 Q2Q, pulling down the total projected ASP for the quarter by a few percent. This would reflect that Seagate was not shipping as high a proportion of high capacity (and thus higher price) HDDs during the last quarter.

The figure below shows our projections for a median, high and low HDD unit shipment forecast out to 2027. Disk and head shipments (important components in HDDs) also are expected to experience a significant hit in 2022 versus 2021.

David Goeckeler of WDC said, “Continued momentum with U.S. cloud customers and accelerated adoption of SMR hard drives were offset by softness in other capacity enterprise product channels and consumer HDD demand. Shipment of capacity enterprise drives based on SMR technologies exceeded 25% of this category, one quarter ahead of our expectations. We now expect SMR to represent over 40% of our capacity enterprise exabyte shipment exiting fiscal year 2023…SMR adoption drove a 19% sequential and 21% year-over-year increase in average capacity to 17 terabytes per capacity enterprise drive, and our 20-terabyte drive exabyte shipments increased more than 150% sequentially.

He went on to say that, “our U.S. cloud customers have started sharply reducing their hard drive inventory alongside other components for their data center build-outs. This, along with continued subdued demand across markets in China, will impact near-term demand over the next few quarters.”

Seagate’s Dave Mosley said that over 40% of the Mass Capacity HDDs the company shipped were 20+TB and that by mid-2023 it would be shipping HAMR HDDs with 30+TBs. He also said that, “We are extending this product family using conventional CMR technology into the mid-20 terabyte range, which also offers SMR capabilities into the upper 20-terabyte range. Development of our 30-plus terabyte platform based on HAMR technology remains firmly on track…We continue to execute our development plans meeting key milestones, including reliability metrics and aerial density gains that also position us to extend drive capacities well beyond 30 terabytes.”

Jim Handy of Objective Analysis provided me with the figure below showing that C3Q 2022 was not kind for NAND flash and DRAM either. Total estimated revenue (Kioxia hadn’t reported yet) is estimated to have dropped 27% in C3Q 2022 from the prior quarter.

Jim says that the causes for this drop in memory demand are:

· With the return to in-person work, schooling, and events, Internet services growth has slowed from its COVID-driven surge, so hyperscale datacenters are trimming orders and digesting excess inventories

· China’s COVID lockdowns are stifling consumer spending in important urban centers of that country

· The combined interest rate increases and the war in Ukraine have slowed the global economy, causing consumer confidence to drop. This has reduced consumer spending worldwide

The chart below shows our updated projection for HDD, SSD and tape capacity shipments from 2012 through 2027. You can see a significant drop in total capacity shipments for this year. Right now we project some growth in capacity shipments for storage devices in 2023, but that depends upon whether the market recovers by early 2023.

HDDs capacity and unit shipments were down about 37% and about 14% respectively in C3Q 2022 compared to the prior quarter. Memory, including NAND flash, was down about 27% in capacity shipments over the same period. Several factors are responsible for the drop in storage demand, including the economy constricting consumer demand and slower demand for storage at the major data centers.