New Hard Disk Drive Technologies Offer Stiff Competition For NAND

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Includes: STX, WDC
by: Robert Castellano

Summary

Internet Protocol traffic in public clouds data centers is expected to nearly triple from 96,054 Petabytes per month in 2016 to 278,108 PB per month in 2021.

Hard Disk Drives are losing share to NAND in client computing systems (PCs and Consumer), but have a commanding lead as Enterprise Performance HDDs for high-performance server and storage.

HDD manufacturers Western Digital and Seagate Technologies are introducing advanced HDD technology for the enterprise in 2019 to maintain their market lead.

On May 14, 2018 in a Seeking Alpha article entitled “Can Demand For Server DRAMs Be Met After Years Of Limited Production Capacity Increases?,” noting in my three bullets:

  • Micron Technology underperformed the industry-wide Server DRAM market in 2017 despite forecasts of strong growth in the sector.
  • Internet Protocol traffic in public clouds data centers is expected to nearly triple from 96,054 Petabytes per month in 2016 to 278,108 PB per month in 2021.
  • Server DRAM demand is forecast to increase from 17,789 million Gb to 98,218 million Gb - a 452% growth between 2017 and 2021.

In this article, I want to address the NAND market for the cloud, primarily because NAND competes against hard disk drives ((HDDs)) and the high prices witnessed in the NAND market are acting as a catalyst for the resurgence of the HDD market.

On the flip side, the increased use of HDDs in the enterprise is altering the NAND supply-demand dynamics and exasperating the oversupply conditions we are witnessing in the market.

A tight demand-supply balance exhibited in the NAND industry for the last several quarters was caused first by the complexity of technology conversions from 2D to 3D and then to higher layer counts in 3D. As these technology conversions are progressing and manufacturing yields are improving, the rate of flash supply growth is also increasing.

HDD Analysis

According to The Information Network’s report entitled The Hard Disk Drive (HDD) And Solid State Drive (SSD) Industries: Market Analysis And Processing Trends, the market is comprised of only three players and has been dropping from 473 million HDDs in 2015 to 425 million in 2016 to 405 million in 2017.

On the face of it, SSD drives are replacing HDDs, offering faster access times, better reliability, more durability, longer lifespan, and lower power consumption. But that comes at a price - $0.20 per gigabyte (based on 1TB SSD drive) versus $0.03 per gigabyte, (based on a 4TB HDD drive). Capacity also benefits HDDs. SSDs are typically not larger than 1TB for notebook size drives; 4TB max for desktop, whereas HDDs are typically around 500GB and 2TB maximum for notebook size drives; 10TB max for desktops.

But the drop over the past three years has been in the client server sector. The enterprise sector is growing strongly, which is the focus of this article.

Solid-state drives have performance improvements over HDDs that have resulted in an ongoing shift toward SSDs for mass storage needs in servers. However, HDDs are less expensive than SSDs, which is a driver for need for low-cost, high-capacity data storage in servers.

Western Digital’s (WDC) Enterprise HDD unit shipments, shown in Chart 1, were up 21% on a YoY, from 6.2 million HDDs in 2Q CY2017 to 7.5 million in 2Q CY2018. High prices for NAND chips combined with robust demand for the cloud-based storage and data center storage have been drivers for the strong growth. To illustrate this further, YoY growth for HDDs between 2Q CY 2016 and 2017 grew only 3%, prior to the ramp in average selling prices ((ASPs)), which started their meteoric rise.

Nearly half of the enterprise drives use 10 and 12TB HDD, up from only 20% in 2017 vs. 18% in the year ago while at the same time cost is down 24% YoY to $0.02/GB.

Chart 1

Seagate’s (STX) Enterprise HDDs, shown in Chart 2, illustrate the same trend as WDC’s – a drop in shipments in Q1-Q3 2017 followed by a ramp in shipments starting in Q4 2017 when the effects of the high NAND prices impacted end-user decisions to move to lower-cost HDDs.

For both companies, we see a drop in shipments in the most recent quarter probably due to the moderating NAND prices during a period of oversupply.

Chart 2

Chart 3 shows shipments by STX in Exabytes of Data for the Enterprise rather than unit shipments of HDDs. We see a similar trend with HDD shipments, except for the continued increase in the most recent quarter.

Chart 3

Chart 4 shows shipments STX in Exabytes of Data for the Enterprise per HDD, showing the continued efforts by the company to increase the capacity of its HDDs in the face of competition from SSDs.

Chart 4

Enterprise Performance HDDs for high-performance server and storage systems require quick response and rapid data transfer. Enterprise Capacity HDDs have large capacity and are used in storage systems and data centers which require large amount of data storage capacity. And these hard drives with several terabytes worth of storage are getting bigger all the time, without too much of an increase in cost to the consumer.

Shown in Table 2 a Samsung 1TB SSD is priced at $0.49 per GB compared to $0.28 per GB for a Seagate 8TB HDD.

Table 2 Nevertheless, SSDs are encroaching on HDDs. According to The Information Network, in 2008, SSDs represented jus 2.3% of data, which increased to 18.3% in 2017. Chart 5 is for data shipped for all data storage, which includes PCs, Consumer, and Enterprise. Since, SSDs have been replacing HDDs in client computing systems (PCs and Consumer) (Table 1), Chart 5 is skewed toward a more favorable SSD utilization that it would be for Enterprise servers alone. Chart 5

HDD’s Technology Innovations

Seagate and Western Digital are shifting from conventional perpendicular magnetic recording (NYSEARCA:PMR) to heat-assisted magnetic recording (HAMR) and microwave assisted magnetic recording (MAMR) in an attempt to increase the capacity of HDDs and lower cost.

WDC expects MAMR will maintain the 10x cost advantage of HDDs over SSDs, as shown in Chart 6. WDC’s October 11, 2017 Press Release notes:

“At the heart of the company’s innovation breakthrough is the “spin torque oscillator” used to generate a microwave field that increases the ability to record data at ultra-high density without sacrificing reliability. Western Digital’s innovative MAMR technology is expected to offer over 4 terabits-per-square-inch over time. With sustained improvements in recording density, MAMR promises to enable hard drives with 40TB of capacity and beyond by 2025, and continued expansion beyond that timeframe.

WDC is sampling a 14TB MAMR drive in 2H 2018 with a production ramp in 2019.

Chart 6 (Source: Western Digital)

Seagate is ahead of the race. In an April 9, 2018 blog, Seagate reported is already shipping HAMR units for customer integration tests with the following results:

  • Manufacturability: Built over 40,000 HAMR drives; pilot volume in 2018, volume shipments of 20TB+ drives in 2019; drives are built on the same automated assembly line as current products
  • Capacity: Achieved 2 Tbpsi areal density; 30% annual density growth on HAMR over past nine years
  • Reliability: Tests proved single-head data transfers of over 2PB, exceeds real-world specifications
  • Simplicity: HAMR is transparent to host; passed customer testing using standard code
  • Cost: Supply chain fully established and ready to launch; projected cost-per-TB path beats legacy PMR technology

Conclusion

High prices witnessed in the NAND market are acting as a catalyst for the resurgence of the HDD market, particularly as enterprise storage systems. While shipments in HDDs in client computing systems (PCs and Consumer) continue to drop year-on-year, Enterprise Performance HDDs for high-performance server and storage systems require quick response and rapid data transfer. Enterprise Capacity HDDs have large capacity and are used in storage systems and data centers which require large amount of data storage capacity.

Both HDD manufacturers, WDC and STX, continue to grow in the enterprise service market. New technologies will enable these companies to maintain their commanding, yet deteriorating lead, in the server market.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.