I found this reddit post interesting. A nice summary of the HDD market, the factors involved in manufacture and sales, and some analysis:
I work in the HDD industry. The below is my personal opinion, informed by what I know of the industry, but not the official position of my employer or any of our suppliers.
I’ve seen the question asked here of could there be an HDD shortage and what that would look like.
I’ll state some facts about this industry:
- There are basically three players; Western Digital, Seagate, and Toshiba. There are very high barriers to entry and it is not possible for some new competitor to suddenly start manufacturing large amounts of HDD storage.
- The supply chains for these three companies are not directly interchangeable. A component designed for a WDC drive cannot be used in a STX or TOS drive.
- The critical component in the supply chain is read/write heads. Heads are built in specialized factories and those factories are running close to capacity with little headroom. Once at capacity, the industry cannot suddenly supply more heads without investment in building new factories, and that investment won’t come if the perceived demand is short-term.
- What the industry can do is shift head allocation to higher capacity drive. Sometimes it takes just as many heads to make an 8 TB drive as a 16 TB drive. We could make fewer 8 TB and more 16 TB if the demand shifted from “drives” to “capacity”.
- No matter how you slice it, if there is sustained new demand for more capacity, there will need to be a price adjustment upwards until more head manufacturing capacity can be developed.
Now let’s talk about the market:
- HDD manufacturers sell to three kinds of customers: OEMs, cloud, and channel.
- OEMs are people like IBM, Dell, HP, etc. They purchase HDDs as a component for the systems that they then sell to their end customers. OEMs are not the final consumers of these HDDs.
- Cloud are people like Facebook, Alibaba, Amazon, etc. They purchase HDDs for their own direct consumption in their data centers.
- Channel is the entire set of wholesalers and retailers that sell HDDs to consumers or to smaller companies that don’t have an OEM relationship with a HDD maker.
The “shortage” that is being reported right now is simply all the drives being sold out of the channel. There is no shortage of drives being sold to OEM or Cloud customers. We have long-term contracts with those customer where they have forecast demand months in advance and we have products in the pipeline to supply them.
What does this all mean - is a HDD shortage really possible?
- Yes, it is possible for the channel to get depleted, which would lead to higher retail prices. This is simply because the channel demand has suddenly exceeded channel supply.
- The industry can increase allocation to the channel but we don’t have a lot of spare capacity. Once factories (especially head factories) are running at capacity we can only allocate to channel by moving supply from OEM/Cloud. This would produce some price pressure.
- We can’t always just move supply away from OEM/Cloud. The contracts with these customers last for multiple years and contain price and supply guarantees.
- If capacity demand exceeding supply becomes a new trend then it can only be addressed by shifting the product mix to higher capacity drives and then building new component factories.
If there was a shortage what would it look like (I don’t personally think there is going to be a significant shortage of HDDs):
- A Chia-led shortage it manifest itself in the channel, with retail hard drives selling out. It would not impact supply to OEM/cloud in the short term due to contractual obligations and how the markets work.
- Hypothetically (this is very speculative) there could be a short-term situation where the only way for a consumer to buy a hard drive would be to buy a system from Dell/HP/etc, pull out the drive, and scrap/sell the rest.
Edit: I want to add a point. The above is my opinion of a HDD shortage happening in the near future based on what Chia is doing now. Some people have asked me “what if Chia takes off”, which is a different question. The current Chia network of <2 EB is nothing. I’d bet the industry could sell 10+ EB to Chia over the next year with no problems other than some local market distortions. But yes, if this thing starts trying to grow by 5 EB a month shortages will develop. OEM/Cloud customers will be protected at first due to some longer-term agreements but price will have to move up if Chia became material to the total demand. Supplies would remain tight until the industry perceived the demand was permanent and responded by building more production capacity.
reddit post by u/SwollenRaccoon