Horizon December 2016 Storage Market Brief

19:35 11 January in Uncategorized

With it being the beginning of a new year I feel compelled to talk about the market drivers that are shaping the storage market and will act as our North Star over the next year. Along the way there will be speed bumps to be managed including an SSD shortage, new technologies and a less than the clear political, economic market.

We know SSD will not be overtaking HDD anytime soon in 2017. It is difficult to quantify the impact that the delay in the introduction of 3D NAND and the SSD shortage will have on the growing all-flash array market that grew 94% in 2016 and other emerging technologies such as NVMe (block storage), Rack Fabrics and NV memory deployments that rely on the low latency storage SSD provides. Will we see promising technologies fail to get off the ground because they can’t ship complete solutions, giving the legacy storage manufacturers such as Net App, HP and Dell (EMC) breathing room?

I have to go here. What happens if our president-elect decides to shake down Western Digital or Seagate, insisting all storage be manufactured in the United States? Supply chains run deep and are global. A tit for tat trade war will upend supply chains.

SSD media has been beating the drum for some time warning us about the pending flash and SSD shortage. Micron stock rockets, franchise are quoting 10 weeks lead times for SSD, and yet, the market seems to shrug it off as a no never mind.
Despite market pundits telling us about the SSD shortage over the past two-quarters, we didn’t really see the market react until December with a handful of OEMs looking for product. We suspect as everyone gets back to work over the next several weeks and gets a clearer picture of what is going on out there we expect to see more and more SSD issues crop up.

Prices have moved up with client SSD increasing anywhere from 15 to 20%. With enterprise SSD, it is less about pricing than it is about finding product. We have seen the price of 2.5” inch 800GB enterprise drive that had been selling in the high four hundred range now selling in the high sixes for them with some pricing high as $900. This price variance is indicative of the difficulty in pricing enterprise SSD in comparison to client SSD which behaves much more commodity like.
Demand for Micron product is particularly acute with Samsung, not far behind while Intel at this point is still relatively obtainable. Most of the enterprise demand that we have seen is for 480GB, 800GB and 960GB capacities. While client demand is for low cap, 128GB and 256GB capacities. Other relevant news is to expect to see client SSD transition from SATA III to PCIE over the next year.
No question SSD will be the primary storage solution, however, to get there they have to deliver the product. Until then, users will have to find a way to ship systems. The enterprise market, because of its special requirements and limited AVL will be particularly challenged and will require supply chain creativity. However, they will be able to better offset SSD prices increase against their value add margin than client type customers that make their margin from marking up hardware.

Enterprise HDD; as we had previously stated the SSD shortage gives HDD manufacturers a bit of runway to reorient their business to a cloud-centric world. Already the manufacturers have realigned their businesses, and the downstream of the supply chain (discussed in greater detail in our Nov. brief) has accordingly made their adjustments.
Supply is at parity if not a little behind demand, and for now, backend rebates are a thing of the past. The SSD shortage is only going to compound the situation, however, the manufacturers unwilling to ramp up supply to meet increased demand knowing that there is a limited window before 3D NAND gets SSD back on its feet.
We saw demand from some well-known builders of cloud infrastructure for large cap drives of 6 and 8TB capacities in December. We expect to see demand increase as market participants who seemed to have a wait and see attitude turn to the market for product. Prices will increase.
With manufacturers having recast production to live in a cloud-centric world, their ability to support legacy demand is significantly hampered as we see an uptick in OEM demand for 300 and 600 gig SAS drives. We expect to see demand increase over the next year as supply continues to disappear, moving consumers to consider factory recertified product.

Demand was driven by an unexpected boom in laptop computers and game consoles. Historically, business slows after the holiday rush, and reports indicate that game consoles sales are sharply down, however, notebook demand was brisk late in December. December was a robust month for high cap (750 and 1TB) notebook drives (2.5”) with several name brand notebook manufacturers active in the market looking for product.
While the desktop market (3.5”) for the most part was flat. The only capacities we saw any significant demand for was for 750GB capacity.
Interestingly enough the SSD shortage provides the manufacturers coverage for moving to SMR (shingled magnetic) technology that increases platter density and lowers costs but sacrifices performance. If SSD were more readily available, SMR technology would accelerate the transition to SSD.

General Thoughts– little has changed from our November market brief. We expect to see supplies challenged as end users come to the realization that supplies are constrained. Expect the shortages to only intensify as SSD manufacturers take their manufacturing lines down to convert 3D technology. We expect to see the shortage last until August or September. This is not unchartered territory for the market, but it is for many of its new participants that have never have had to navigate a shortage. It is those that recognize and make critical supply chain decisions that will keep their supply chain intact.
As product becomes tighter prices will only increase.

I would love to hear your thoughts.

Please email me at stephen.buckler@horizontechnology.com

Stephen Buckler