Chia Crypto Demand Prompts WD, Seagate to Ramp Up HDD Production

Demand for hard drives skyrocketed recently because of Chia cryptocurrency farming, causing major HDD shortages and sending retail prices to record highs. In a bid to meet the demand for hard drives, Seagate and Western Digital are ramping up production of their high-capacity HDDs by cranking up their existing production lines to utilize them more fully, a process that takes time. However, neither company has immediate plans to increase their production capacity (i.e., build new factories/production lines) in the near term, meaning shortages could persist if the Chia craze continues.

HDD makers sell the vast majority of drives to large customers under long-term agreements per predefined terms and conditions, so they’re contractually obliged to send trucks of drives to their biggest customers. That makes quickly ramping up production for retail outlets anywhere from hard to impossible. In fact, Seagate sells only 30% of its HDD output via distributors and retailers, whereas Western Digital supplies 40% of its hard drives using distribution channels.

As a result, when the Chia coin frenzy started this April, neither vendor could suddenly pump more drives into retail as prices of higher-capacity hard drives skyrocketed and range-topping models quickly sold out.

At press time, the hard drive capacity allocated to the Chia network totaled a whopping 20EB (exabytes), up from 13EB on May 29 and up from 1EB in late April. 20EB is still less than 10% of the total HDD capacity (288EB) shipped in Q1 2021, though.

The consumer world has mostly moved to SSDs, so Seagate and Western Digital reduced their HDD production capacities over the last several years as hard drive sales decreased. In fact, even the existing production capacity is more than sufficient to satisfy demand — at least normally.

To meet the demand for hard drives for Chia farmers, both HDD makers will ramp up the production of HDD components and drives (for example, going from a 90% utilization of existing production lines to 100%). According to executives from two companies that spoke at investor conferences this week, that’s exactly what they’re doing.  

“This new [Chia cryptocurrency] demand is basically helping us to improve […] in the short-term, and bridge from a situation of underutilized capacity to a situation of almost fully utilized capacity,” said Gianluca Romano, the chief financial officer of Seagate, at Bank of America Merrill Lynch 2021 Global Technology Conference (via SeekingAlpha). “Then, in two or three quarters we see where we are, and if it is still a great opportunity, we can upsize and increase the volume or staying as we were planning before, still in a very good situation.” 



Source link