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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.