Hyperscalers, Chia Driving Growing HDD Demand: TrendFocus

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Expansion of hyperscale environments, a rebound in OEM demand in an economy rebounding from the COVID-19 pandemic and the rise of the Chia cryptocurrency is helping to fuel growth in hard-disk drive (HDD) shipments around the world.

According to a recent report by market research firm TrendFocus, HDD unity and capacity shipments in the second quarter hit record numbers, with about 19 million units and 240 exabytes (EB) moving. The previous record number for unit shipments was 17.19 million in the first quarter of 2020; for capacity, the previous record was 193 EB in the first quarter this year.

The numbers were strong despite the ongoing adoption of solid-state drives (SSDs), which continue to replace HDDs as the primary storage in client systems like desktops and laptops due to their reliability and the continuing decline in pricing, making them more competitive with HDDs in cost. However, as TrendFocus’ numbers show, there still is a role for hard-disk drives in IT and cloud environments.

TrendFocus Vice President John Chen told Enterprise Storage Forum that the high demand for nearline was the biggest surprise from the research firm’s Q2 numbers but added that volatility in the space makes predicting future trends challenging. That volatility can be seen in the OEM market, Chen said. 

OEMs and the Pandemic

OEM demand in 2020 was suppressed by the pandemic, including move to remote work and a drop in IT spending. As economies rebound from the shutdowns and restrictions, TrendFocus analysts expected IT spending — and OEM equipment vendor business — to improve.

It improved faster than earlier forecasts and total HDD demand looks positive, but current COVID-19 situations, such as the spread of Delta and possibly other variants, could slow the economic recovery, which could mean that demand gets pushed to next year. Also, cloud providers and hyperscalers don’t all phase in new storage capacity at the same time.

“From a unit perspective, nearline (or capacity enterprise) HDDs comprised less than 30 percent of units shipped in CQ2 ‘21, but nearly 70 percent of all capacity shipped in HDDs,” Chen said. “Because of the high average capacities of nearline HDDs consumed by the cloud, this HDD category is responsible for much of the revenue and profits for HDD suppliers. Hyperscale — or cloud — customers tend to use a combination of SSD and NAND for performance storage and high-capacity nearline HDDs for inexpensive bulk storage.”

IDC Expects Continued Market Growth

IDC saw a similar trend. In a report in June, the analysts said demand for HDD petabyte shipments will grow an average of 18.5 percent through 2025 and average capacity per drive will increase 25.5 percent.

“While the client HDD market continues a long-term secular decline due to rising SSD attach rates, the COVID-19 pandemic has over the near term increased the demand for certain types of HDDs, particularly mobile HDDs as well as capacity-optimized HDDs,” Edward Burns, research director for HDD and storage technologies at IDC, said in a statement. “And the demand for storage capacity continues to grow at a steady pace as the world creates and stores more and more data.”

Chia Cryptocurrency Fuels Demand

The growth in Chia cryptocurrency farming also has had an impact on the HDD space, with vendors like Western Digital, Toshiba, and Seagate reaping the benefits. Unlike other cryptocurrencies like Bitcoin, Chia mining uses a different method that relies more heavily on storage by its “farmers,” including the amount of storage provided and for how long.

“Chia and other ‘proof-of-space’ blockchain technologies rely on blockchain validation against stored cryptographic data, rather than complex calculations used in ‘proof-of work’ schemes (such as Bitcoin),” Chen said. “Initially, when Chia launched in the spring, there was a storage land rush to deploy more HDDs to store plots (data) for Chia blockchain validation.”

The probability of a Chia “farmer” validating a blockchain challenge and earning Chia coins grows with the number plots the farmer deploys, driving the need for more storage, he said, noting that most of the storage provided for this work was bought via the channel rather than through OEMS.

However, that trend will likely slow, at least for a while.

“The cryptocurrency market is notoriously volatile and the restrictions that China has placed on mining and farming various cryptocurrencies has had a chilling effect on some, including Chia,” Chen said. “While Chia and other storage-based cryptocurrencies may grow over the long-term, the hype from earlier in the spring has died down somewhat.”

Western Digital, Seagate Weigh In

Western Digital CEO David Goeckler, when discussing the company’s latest quarterly earnings numbers earlier this month, said the company’s HDD businesses saw 49 percent sequential growth despite issues in the supply chain, helped along not only by demand in the cloud as well as with the Chia cryptocurrency, which he said probably drove $100 million in revenue in the quarter.

“Chia had a big impact on the channel and inventory and it’s going to take a little while for that all to normalize,” Goeckler said, according to a transcript on Seeking Alpha. “I think you have a lingering impact there. We’re certainly watching overall demand, but it’s tapered off from where it was, let’s say. mid-quarter. But clearly a space we’re watching.” 

Seagate CEO Dave Mosley had similar thoughts during the company quarterly earnings call in late July. Mosley said Chia accounted for a mid-single digit percentage increase of total exabyte shipments during the quarter and that even the incremental demand tightened an already taut HDD supply chain.

“It’s really hard to forecast exactly what’s going on in Chia, and not just because of Chia itself, because they are fairly transparent with their numbers, but because of the entire space that’s developing,” Mosley said. “We did say that on the growth of the NAS [network-attached storage] space that we’ve seen to date, there’s probably a fair amount of refurbished drives or drives that have been purchased one or two quarters ago, so it’s a relatively small contribution as of yet to Seagate’s overall revenue, and even in the exabyte growth perspective, I don’t think it’s very big.”

However, Mosley said the Chia space is one to watch, given the innovation in the cryptocurrency arena.

“The big takeaway is if it continues to grow and fast, it will have to grow with more new build, so that’s something for us to watch,” Mosley said, according to Seeking Alpha. “But we’re not really forecasting very much of that into our guide right now because we’re going to wait and see a little bit, and we’ll react to customers who are trying to drive more demand in the channel as it happens.”

Jeff Burt
Jeff Burt
Jeffrey Burt has been a journalist for more than three decades, the last 20-plus years covering technology. During more than 16 years with eWEEK, he covered everything from data center infrastructure and collaboration technology to AI, cloud, quantum computing and cybersecurity. A freelance journalist since 2017, his articles have appeared on such sites as eWEEK, The Next Platform, ITPro Today, Channel Futures, Channelnomics, SecurityNow, Data Breach Today, InternetNews and eSecurity Planet.

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