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WD Slashing Output Amid Looming SSD Price Bust

(Image credit: Western Digital)

Western Digital told shareholders this week that it plans to delay the deployment of capital equipment and reduce wafer starts to reduce its output by 10-15 percent for CY19. The move follows a report claiming SSD prices could fall by as much as 50 percent in 2019 as manufacturers outside of Western Digital continue to increase their output, switch to denser storage technologies and contend with increasingly hostile trade environments.

This shift has been a long time coming. Back in January, we predicted that SSD prices would fall, and in June, that prediction started to come true. Some manufacturers have simply rolled with the punches. Others, like Western Digital and Samsung, have decided to limit their production for 2019 to help keep prices stable or even allow them to climb a bit.

Declining SSD prices can be great for consumers. We're finally reaching the point where it might be feasible never to buy another HDD. But these falling prices could have significant effects on companies like Western Digital, which announced yesterday that its revenue and operating income fell to $5 billion and $705 million, respectively in the most recent fiscal quarter, compared to the $5.2 billion in revenue and $905 million in operating income from the previous year.

In an earnings call, Western Digital named numerous factors were responsible for this dip, from declining consumer demand to increasingly tense relations between the U.S. and China. And "tense" might be an understatement, with the U.S. government levying more tariffs on goods originating in China as part of a trade war that could have serious implications for tech businesses, the semiconductor market and your own PC budget.

But the looming trade war isn't the only problem; supply and demand are too. Western Digital CEO Stephen Milligan said on the earnings call:

"This softening demand, in combination with increased flash supply, has led to a market imbalance resulting in a deteriorating near-term flash pricing environment. In response to these conditions, we are making an immediate reduction to wafer starts and delaying deployment of capital equipment. These actions will reduce our wafer output beginning in fiscal Q3 2019. The goal of these actions is to better align our output with the projected global demand for flash. The duration of the planned output reduction will depend upon market conditions and will not impact our ability to meet customer commitments nor will it impede our ability to deliver the most innovative and cost-competitive solutions to the market."

Western Digital's stock price plummeted after the earnings call, with trading falling from $54.01 on the close of October 25 to $42.11 on the morning of October 26. Analysts have also downgraded the company in response to the declining revenues. So while many enthusiasts might be excited by declining SSD prices, the penny counters at companies like Western Digital aren't nearly as keen on the circumstances leading to that fall.

  • derekullo
    Hostile trade environments sounds a lot like being forced to be competitive on price.
    Reply
  • InvalidError
    21434223 said:
    Hostile trade environments sounds a lot like being forced to be competitive on price.
    In the DRAM space, massive price drops due to over-supply from a demand dip were usually followed by one or more memory manufacturers going bankrupt before prices bounced back up. Shouldn't be difficult to imagine how the same thing could happen in the flash memory space.

    It doesn't make sense to compete in a market that is below costs.
    Reply
  • Peter Martin
    Agreed. Cut losses wherever you can
    Reply
  • jimmysmitty
    21434277 said:
    21434223 said:
    Hostile trade environments sounds a lot like being forced to be competitive on price.
    In the DRAM space, massive price drops due to over-supply from a demand dip were usually followed by one or more memory manufacturers going bankrupt before prices bounced back up. Shouldn't be difficult to imagine how the same thing could happen in the flash memory space.

    It doesn't make sense to compete in a market that is below costs.

    The only downside is the consumer looses out. DDR4 jumped a lot in price. They should allow SSDs to drop to near HDD prices.

    As well over saturation is not the fault of the consumer but either way they end up paying.
    Reply
  • InvalidError
    21434343 said:
    The only downside is the consumer looses out. DDR4 jumped a lot in price. They should allow SSDs to drop to near HDD prices.
    DDR4 prices jumped a lot because the surviving memory manufacturers have to recover the losses they ate while DRAM prices were low from over-supply and then end up in under-supply again once current stock is gone because there is one less manufacturer in the market. Low prices may be nice, but they aren't sustainable.

    As for SSDs coming anywhere near HDD prices, increasing capacity on magnetic platters is still much cheaper and simpler than reliably cramming more cells in flash chips, so don't expect the $/TB to favor SSDs any time soon, if ever even if SSD manufacturers went non-profit.
    Reply
  • t.s.wiacek
    "In an earnings call, Western Digital named numerous factors were responsible for this dip, from declining consumer demand... "

    It should sound like:
    "... from our irrational price increasing policy leading to faster than expected decline in sales... "

    They dug their own grave and are blaming customers for not overpaying for their products.
    Reply
  • klockwerk
    I still need multi-terabyte backup over years. SSDs are not suitable and you know where you can stick cloud storage.
    Reply
  • klockwerk
    I still need multi-terabyte backup over years. SSDs are not suitable and you know where you can stick cloud storage. Never to Buy Another HDD is a bad joke.
    Reply
  • elbert
    Good so maybe WD will refocus back to there hard drive business. There is no reason for there 3TB not being $50 and there 4TB $65ish. There are both nearing a decade old capacity. The should move beyond most SSD capacity"s sold like in the old days. WD could still sale their near 5 year old capacity 6TB drives for $100 and make huge profits. If you ask me HD will never be totally replaced by ssd given some data has very little need of fast loading. My old home movie restoration for example which I use Plex to watch them.
    Reply
  • zenmas95
    With the demise of crypto mining hardware prices with finally stabilize.
    Reply