Horizon June 2017 Storage Market Brief
I marvel at how well the storage market demonstrates the intersection of micro and macro-economic trends, with the manufacturers operating within the lines drawn by forecasts and having to make monthly adjustments with a constant eye to the future. As we move into Q3, there is much to talk about that will shape the near-term and long-term storage market.
The market continues to watch the SSD market as WD and Toshiba continue to bicker over who will own Toshiba’s coveted fab capacity and for signs the SSD shortage will end. After several solid months, built on the back of an SSD shortage, HDD market is showing signs of settling. We see the signs of a softening market with reports of partners putting together deals with special pricing, order cancellations and an increase in excess opportunities hitting the streets.
This is not unexpected. Demand is not linear, and forecasts are made and missed with corrections made along the way. We don’t see this as a sudden reversal of HDD trends, but adjustments made within the lines of a transitioning market. Market participants are still optimistic that the market data center refresh cycle is still on target and hope to get an added boost from Intel’s release of its Purely processor. The wild card is manufacturers skipping over 10TB capacities, choosing to wait for 12 and 14 TB capacities to refresh their data centers.
We have seen a softening of the SSD market; however, this may be more a symptom of slowness within the market. Nevertheless, not everyone is feeling like things have slowed. Intel and Micron did no one any favors with abrupt EOL notifications that left many enterprise end users scrambling. Both are aggressively pushing their customer bases towards TLC based SSD, but not everyone will move off MLC based SSD. Customers are reporting both manufacturers are slow to fill end of life buys for MLC based SSD.
To hasten the adoption of SSD, the manufacturers have traded off performance for cost. 3D NAND will dramatically lower the cost of SSD; however, it will be at the expense of performance. TLC flash demonstrates accelerated read performance, but suffers in write intensive environments, great for consumers, but a challenge for enterprise environments. See attached for a more in-depth explanation http://www.tomshardware.com/news/consumer-optane-enterprise-ssd-market,34631.html. NAND reliability worsens with increased density. TLC is managed at the system level to increase reliability by reducing overhead and spreading out writes across a larger pool of storage. Deploying TLC based SSD in an enterprise environment and maintain performance will require increasing storage levels.
Intel has been aggressively pushing its NVME based SSD that utilizes its 3D Xpoint NAND. Depending on the audience, this can mean very different things. For the client user, it is a big win. Simply plug in and more speed, while it isn’t so simple for the enterprise side of the business. It requires the heavy lifting and coordination of moving from one ecosphere to another due to the different connection/controller requiring wholesale change. However, NVMe has been gaining momentum within the Hyperscale space due to their having greater oversight of their environment. The release of Intel’s Purley processor will help move the migration to NVMe, because many vendors were holding out until the release of Purely, giving end users more options and a nudge to move to the new format.
We can’t talk about SSD without talking about the showdown between Toshiba and Western Digital. Both have very different takes on the situation, but at the end of the day, they need each other. Toshiba needs cash so they need a quick resolution. WD needs continuity. Being vertically integrated as a storage supplier is critical to positioning within next generation storage solutions. WD can throw a wrench in Toshiba’s plans by slowing the process. Already, where timing is everything, there is talk of fab 6 being delayed because of the dispute.
SSD transition to 3D based NAND is not without its problems. Reportedly, both Intel and Micron are not getting the writes they had hoped for, pushing back volume shipments. Toshiba is reportedly on its 5th iteration of its BICs NAND, an indication of low yields. Low yields compounded by the storage hungry release of Apple’s I8 and Samsung Note phones will push the shortage into 2018. However, Samsung is reportedly ramping its 3D NAND based SSD and has been happy to step in to fill shortfalls in deliveries by their competitors with one enterprise customer reporting Samsung has given them a 4% discount, a power move to gain market share.
Recently released 2017 Q1 sales indicate Server sales are down from 2016 Q1 numbers. Hyper scale data center demand continues to chug along, but is challenged by DRAM and NAND shortages, slowing nearline deliveries. There is some churn within the market with reports that Seagate is aggressively pushing its bread and butter air based drives across 4, 6, and 8TB capacities, offering price concessions for select customers to boost quarter end numbers to close the gap on quarter end targets and establish a leadership role. We have also seen several excess opportunities hit the open market within the week for 8TB Helium drives. Most likely a result of the scaling back of a good sized build t build.
Market participants continue to be optimistic for a Q3 refresh cycle, but there is a question if end users will skip over 10TB capacities, choosing to wait on 12 or 14TB capacities. WD (HGST) appears to be best positioned for the refresh cycle, with Toshiba not playing a material role as they play catch up and WD (HGST) enjoying a 10 to 15% price advantage over Seagate. Seagate has struggled with supply chain (high cost face plate) and quality (vibration) problems for its helium based drives, resulting in internal personal changes. There are reports that Seagate moved 10TB capacity drives into China, earmarking them for the less demand requirements of the NAS and surveillance market, indicative of their ongoing quality issues.
We have heard from several customers that Toshiba is making a hard push within the enterprise space with their looking aggressively to qualify 8TB for Q3/Q4 and 10TB air based drives for Q1 2018. They enjoy a cost savings advantage due to locally sourced components. However, I read there are questions on how well they will operate in 100 plus drive configurations due to power and heat concerns. Probably a better fit for 24 bay solutions. For Toshiba to make inroads with the big boys, they will have to be aggressive with pricing with 8TB (airs) reported to have to be in the $160 range. Word has it Toshiba would like to sample 14TB come Q1.
We expect no significant impact on pricing, but product from a reported truck rollover involving 10TB HGST drives is making its way to the open market and may prove disruptive to channel pricing. This first came to our attention when we saw several low offers come across our desk that were far below market norms. The exact condition of the drives is unknown; however, these are built with 14 read/write heads and 7 platters spinning at 7,400 RPM that require tight tolerances, so there is a high probability these drives will throw off sector errors.
Also noteworthy is HGST retiring its HE8 series and replacing it with its HE10 series. Last time notifications were announced in May, with last time buys through the EOM of June. There is a price gap between the two series, but expect to see pricing reach parity between the two series.
After a welcome Q1 bump, PC sales have again continued their expected downward trajectory. Q3 is traditionally the big build period for the back to school builds, but we hear PC production has declined significantly over the past few weeks, which will likely result in forecast revisions. There are rumors the finished goods PC inventory is building in the channel. This may explain the settling we have seen in client SSD pricing over the past month. However, this may prove temporary as we get closer to the release of Apple’s I8 phone and Samsung’s One Note which have the potential to ignite the NAND shortage.
Seagate is reported to be aggressively pushing 500GB PMR drives with discounts. Prices are also expected to drop for 1TB capacities in Q3 as WD enters the SMR fray. WDC has been reporting good results with their SMR drive. Reports are that Seagate is bumping against quality issues and Toshiba is just starting shipping samples of their SMR drive.
Seagate is aggressively courting the game consul business, which is less interesting to WDC/HGST due to low margins.
June is a pivotal month for manufacturers, as it is the back to school build season. There isn’t a panic, manufacturers are balancing hitting sales goals while maintaining profitability.
We all know the end game for storage, and that is all data is stored in the cloud and the data centers are at the epicenter. Everyone wants their drive to be qualified by the big boys. WDC/HGST are dialed in and shipping HDD in volume into data Centers and are aggressively fighting to stay in a leadership position within SSD. Samsung is quietly leveraging its first mover advantage to fill the gap left by the shortfall of its competitors.
Along the way, there are many opportunities as the market transitions that require careful planning and strong execution, which both Toshiba and Seagate have struggled with. The recent softness is driven by the normalizing of PC sales and jockeying within the enterprise space resulting in order cancellations and product mix issues. This is not a dramatic swing and could reverse itself quickly however at this time it is a buyers’ market. Although, as the market moves to new technologies and revisions expects supply gaps around recently phased out products if you didn’t plan accordingly.
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