Flash price crashing leading to disk drive trashing

A flash price crash is coming and should increase disk cannibalisation rates as SSDs become more affordable.

Objective Analysis’ Jim Handy, presenting at last week’s Flash Memory Summit,  thinks flash over-supply will result in  massive price falls – to near the product cost of 64-layer 3D NAND – meaning $0.08/GB in 2019. Handy characterises it as the largest-ever price correction in the history of semi-conductor products.

Wells Fargo senior analyst Aaron Rakers, using IDC and DRAMeXchange data, currently estimates total NAND Flash pricing at ~$0.30/GB. Rakers notes Objective Analysis’ current expectation is for a 45 per cent per annum growth in NAND flash capacity shipped.

Some 70 per cent of of total industry flash is currently 3D NAND, with the remainder the older 2D or planar NAND. Handy believes this manufacturing capacity could be migrated to making DRAM instead.

Handy thinks this could result in DRAM capacity over-supply in the future.

Deep StorageNet chief scientist Howard Marks, also presenting at FMS 2018, suggested that a 5x differentiation in $/GB between enterprise SSDs and HDDs should be considered the crossover point to move toward SSD cannibalisation. 

Rakers notes enterprise SSDs are currently at a ~3-4x $/GB premium relative to mission-critical HDDs, and enterprise SSDs currently stand at ~15-17x $/GB premium relative to nearline / high-cap enterprise HDDs.

Recently-announced QLC (4bits/cell) SSDS from Intel and Micron are aimed at taking share from nearline disk drives for rad-intensive applications.

If Handy’s  prediction is accurate then SSD pricing will go down too. He sees a trend for NAND prices to fall to roughly 25 per cent of their current prices. If SSD prices go down in lock step then we are looking at a 75 per cent cost reduction.

That means enterprise SSDs, currently at around $0.30/GB compared to $0.92/GB for nearline/high-cap disk drives. Assume a 75 per cent price cut for those SSDs to $0.08/GB and they would then only be 4x more expensive per GB than disk drives; underneath Marks’ xX crossover point.

Logic would then suggest significant cannibalisation of nearline/high-cap disk drive sales by SSDs, at least for read-intensive work.

Handy’s price correction will take several quarters, leading us to suppose there could be a quite severe contraction in nearline/high-cap disk drive sales.

Coincidentally Mark Delaney, a Goldman Sachs analyst, thinks Seagate’s share price – $50.88 at time of writing – will reduce to $44 and has downgraded the stock to sell from neutral.  Delaney’s rationale is that “HDDs [hard disk drives] remain a cyclical industry, and one facing secular challenges in many parts of the market from the growth of SSDs [solid-state drives] … NAND is oversupplied and SSD prices are falling (and in some cases pricing is down by as much as 30-40 per cent from the peak.”

The bulk of Seagate’s revenues come from disk drives, and increasing nearline/high-cap drives,  whereas competitor Western Digital gets more than half of its revenues from flash and is less exposed to a disk downturn.

However, it is more exposed than Seagate to a NAND pricing collapse. Will Seagate’s swing slow more than WD’s roundabout? Who knows? Better call Saul!