Seagate joins the HDD price hike party, blames AI for spike in demand

Expect ongoing supply shortages this year, say storage analysts

Seagate has joined Western Digital in increasing the prices of hard drives, with rising demand due to the huge data requirements of AI taking the blame. AI is also behind a rapid growth in orders for Enterprise solid state drives (SSDs).

One of the big three makers of traditional rotating hard disk drives (HDDs), Seagate informed customers that it is increasing prices effective immediately for new orders, but also for any changes to orders that are “over and above” previously committed volumes.

This was disclosed in a letter from the company seen by analyst Trendforce, and comes just a couple of weeks after rival manufacturer Western Digital sent out a similar letter to customers informing them of price hikes.

According to Trendforce, the cause of the issue is two-fold: rising demand for high-capacity HDD products driven by the current craze for all things AI, and reduced production by hard drive manufacturers that means they are unable to meet the demand, leading to soaring prices.

The rising demand comes from AI training requiring huge volumes of data: OpenAI's GPT-3 model is said to have been trained using 45TB of data, which may have been surpassed for newer models. And while flash-based SSDs boast high-speed and low-latency, storing everything in flash would still be costly. Seagate launched a 30TB hard drive line last year.

Hard drive production was cut by as much as 20 percent over the last two years or so because of falling orders during the pandemic, and now manufacturers are unprepared for a sudden uptick in demand.

This was pointed out in a blog late last year by Finis Conner, one of Seagate’s founders.

“We can point the finger at COVID. Reduced global business and manufacturing activity during the pandemic caused a decrease in demand for disk drives and cloud storage. This resulted in a massive surplus in hard drive supply. It’s temporary, but the HDD surplus is still hurting sales and negatively impacting HDD stocks,” Conner wrote.

The danger is that it will take a long time to fire up the HDD production engine again, he warned, and there are now only three suppliers in the world: Seagate, Western Digital and Toshiba. So it looks like buyers may face inflated prices for the foreseeable future.

Trendforce says there is an expectation of ongoing supply shortages for high-capacity HDD products this quarter and potentially throughout the entire year. HDD prices are expected to continue rising in the second quarter of this year, with hikes estimated at 5 to 10 percent.

The analyst also reckons that AI is behind increasing demand for QLC enterprise SSDs to kit out inferencing servers, at least from North American customers.

Bit shipments of QLC enterprise SSDs are forecast to reach 30 exabytes in 2024, which Trendforce calculated to be a fourfold increase in volume compared with 2023.

QLC or quad-level cell is a capacity-optimized NAND flash memory technology. It can hold four bits of data per cell, increasing capacity and lowering the cost per GB of storage.

According to TrendForce, the increasing use of QLC SSDs for AI applications is because inference servers primarily perform read operations, and SSDs have a speed advantage here. Enterprise SSDs also consume less power and are generally more compact than hard drives.

The company says that Samsung held more than 40 percent market share in the enterprise SSD sector during Q4 of 2023, while Solidigm (a trademark of SK hynix) stood at 32 percent.

Solidigm plans to expand production of 144-layer devices in the second half of 2024, according to TrendForce.

However, Samsung focuses on 176-layer devices and faces no significant competitors, it says, and so is benefiting from the tight supply of high-capacity QLC products.

This is expected to drive enterprise SSD contract prices up through Q3, with an estimated quarterly increase of five to ten percent again.

The outlook then is that AI demand is likely to see a price increase for both HDD and SDD datacenter products in the near future, at least if TrendForce is right. ®

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