WD and Seagate increase HDD production, Chia is to blame

WD and Seagate increase HDD production, Chia is to blame

WD and Seagate increase HDD production

Demand for hard drives has skyrocketed recently due to the spread of Chia cryptocurrency farming, causing severe HDD shortages and driving retail prices to record highs. In an effort to meet demand, Seagate and Western Digital are ramping up the production of their high-capacity HDDs by upgrading their existing lines to use them more fully, a time-consuming process. However, neither company has immediate plans to increase their production capacity (i.e. build new factories or lines) in the short term, meaning shortages could persist if the situation does not improve.

I HDD manufacturers sell the vast majority of drives to large customers with long-term deals. This makes it difficult to procure products for the retail market. In fact, Seagate only sells 30% of its production through distributors and resellers, while Western Digital supplies 40% of its hard drives using the usual distribution channels. As a result, when interest in the Chia cryptocurrency skyrocketed last April, neither vendor was suddenly able to supply more drives to stores, as prices for higher-capacity hard drives soared and top-of-the-line models. they quickly ran out.

Currently, the total capacity of the hard disks present in the Chia network has reached 20EB (Exabyte), compared to 13EB on 29 May and only EB at the end of April. However, 20EB is less than 10% of the total HDD capacity (288EB) shipped during the first quarter of 2021. Consumers have mainly switched to SSDs, so Seagate and Western Digital have reduced their HDD production capacities in the past years due to decreased sales. In fact, even the existing production capacity is more than enough to meet the demand, at least normally. To meet the renewed demand for hard drives for Chia farmers, both manufacturers will increase production of HDD components and drives (for example, from 90% utilization of existing production lines to 100%).

However, neither company plans to increase overall production capacity, for example by building a new factory or production line, to meet the demand caused by Chia's farming. Instead, they will use everything they already own to produce as many high-capacity drives as possible. This means that the retail prices of the drives will depend directly on the demand from Chia farmers rather than on the supply of Seagate and Western Digital, at least in the short term.

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Seagate and Western Digital increase HDD production as Chia sends sales skyrocketing

TL;DR: Cryptocurrency Chia has caused demand for hard disk drives to skyrocket in Europe. As many feared when it launched, this has resulted in shortages and increasing prices, forcing Seagate and Western Digital to ramp up production of their HDDs.

The Chia blockchain uses a 'proof of space and time' model instead of 'proof of work' (Bitcoin) or 'proof of stake' (Etherium 2.0), meaning people can farm the crypto by allocating their unused disk space. It's already led to a 500% increase in Adata SSD sales and warranty warnings; Chia farming can reportedly ruin a 512GB SSD in 40 days.

According to research firm Context (via The Register), European sales of enterprise-grade nearline storage drives of 10TB capacity were just under 200,000 in April, representing 240% year-on-year growth. It was a similar story for consumer-grade NAS HDD sales, which were up 167% YoY to ~250,000.

Even sales surveillance disk drives, designed for use in surveillance systems, are up 116% despite 'no specific event in surveillance to cause that growth,' senior enterprise analyst Gurvan Meyer told The Reg.

Much in the same way that the high demand for graphics cards is boosting manufacturers' bottom lines, Seagate has upped its revenue forecast for the current quarter due to 'an increase in the crypto farming demand,' CFO Gianluca Romano told investors.

Both Seagate and Western Digital are capitalizing on Chia-induced demand by ramping up production of HDDs following years of reducing production capacity as consumer demand declined. '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,' Romano added.

Western Digital's CFO Bob Eulau offered a similar view: '[…] we'll see how the Chia situation plays out incrementally, it's mostly affected volumes in the channel. And we went through a period where we got pretty lean in terms of channel inventory, and we're working to get that situation resolved and basically producing for all of our customers at full capacity right now.'

Both firms are cautious about committing to major investments such as building new production lines or factories, given cryptocurrency's volatile nature. However, with the storage space allocated to Chia's network jumping from 1 exabyte (EB) in late April to 20.2 EB today, Seagate and WD may need to do more to avoid shortages and huge price spikes. One bit of good news for consumers is that Chia's price has fallen from a high of $1,685 in mid-May to $550.

Image credit: nordantin