Chia space crypto-mining puts Seagate disk drive revenues in a spin

Disk drive maker Seagate has upped its revenue forecast for the current quarter, with its CFO telling investors there has been “an increase in the crypto farming demand.”

Chia is the basis for the bitcoin-like chiacoin cryptocurrency. It relies on a a linked blockchain of mathematical constructs based on a proof of having disk (or SDD) space over a time period. This is said to be less demanding in electricity supply terms than bitcoin, which relies on a proof-of-work, requiring large amounts of CPU processing.

Yesterday Seagate increased its Q4 revenue and EPS expectations via an SEC filing. Having previously expected revenues of $2.85bn (give or take $150m), it now expects them to be $2.95bn (+/- $150m), a $100m uplift. Expected EPS will also jump, from $1.60 +/- $0.15 to $1.85 +/- $01.5 – a $0.25 increase.

Gianluca Romano

Seagate CFO Gianluca Romano told a Bank of America Merrill Lynch 2021 Global Technology Conference that Seagate was having a good current (fourth) quarter: “We were expecting a very strong near line market demand, both on the cloud and enterprise OEM side, and we see that happening; so really good.” Oddly, “On the legacy side, I would say mission critical consumer are also performing well.”

The chia-related demand is a bonus on top of this. Romano also said the increased demand led to better pricing and better manufacturing capacity utilisation: “This is helping us in utilising some of the capacity now that we’re discussing in the last six to nine months, but was not fully utilised. We had — the industry added too much capacity for a few years.”

Research firm Context said this week that the launch of the cryptocurrency has caused demand for hard disk drives in the European market to blow up, with figures for April showing just under 200,000 enterprise-grade nearline storage drives of 10TB capacity and above sold to end users across the region, a 240 per cent growth compared with the same month in 2020.

Meanwhile, NAS consumer-grade HDDs saw around 250,000 units sold, a year-on-year increase of 167 per cent.

Romano doesn’t know how long the chia demand will last but is happy Seagate can use its manufacturing capacity for longer than expected. Romano also said the chia demand should positively impact all HDD suppliers: “I think is good news, an improvement for the full industry.” That means Western Digital and Toshiba should benefit as well.

While that’s all very well for the firms, it also means higher prices for ordinary business and consumer HDD buyers, ones not involved in chia farming, and ones without long-term supply agreements.

If the chia demand remains strong for another two or three quarters, then Seagate could look to increase its manufacturing capacity.

Seagate shares were priced at $84.05 on May 12 and are now at $100.82, having peaked at $105.2 on May 17.