https://www.trendforce.com/news/2024/04/22/news-ai-boosts-demand-for-high-capacity-hdds-as-seagate-expected-to-follow-with-price-increases/

Tonight seagate earnings call. I expect a very bullish recovery in the next quarter.

But it really depends on which part of the componeny a company is making for HDD business, the capacity is trending higher and higher thus the amount of HDD required is going down.

Lol, that's why I said hopefully although not really possible. They have metal stamping division as well, and they serve more than one industry other than semiconductor.
Yes, newbie8080, you're right. HDD TCO is lower than SSD in the data centre, that's why almost all the hyperscaler are still using high capacity nearline HDD as their primary memory storage device.

Hopefully dufu can secure AI server contracts like PIE did. Although it's not that possible...

The new shareholders are here to make money. When the share price plunges to RM1, APB will suffer 50% paper lost.

Good luck with your valuation trick.

Nevertheless, all the OSAT companies in Malaysia will benefit gao gao from this China-US tech war. More and more companies will approach our local players for order diversifying and eventually making our local champions to become more prosperous. I guess this is the new theme with almost no downside but huge upside that a contrarian investors can safely bet on. Remember, human will perform the best when they are in pressure.

They have mentioned multiple times in their quarterly report that they are engaging with new customers to get new orders. I trust what they said because most of the penang tech companies are very accountable and honest. Gtronic is trying hard to position themselves to benefit from the upcoming semiconductor uptrend. The only downside that I can see now is the new management. We need time to understand what's their thinking and whether or not they can be trusted to turnaround the business.

Gtronic is serving mostly consumer electronics components. I guess that's why the current new CEO is trying hard to engage with more customers to divert from consumer to industrial usage semiconductors. You can clearly see that Gtronic focuses more on niche product in order to enjoy the high margin.
Their capex has been sluggish since FY2019 until FY2022. In these years, their capex is ranging from 10-20million only. This is something that I don't like, they are not trying hard to put shareholders money into expanding the business. However, the capex upcycle has been resumed since FY2023, with 30 million which I think it's a good sign of new orders incoming. In FY2024, the CEO told the analyst that they are going to do 50 million in capex, which is something that I like. The new CEO is finally utilizing their cash flow to do something other than giving back all the money to the shareholders.

Next week shoot to the moon.

https://www.trendforce.com/news/2024/04/09/news-western-digital-customer-letter-confirms-hdd-supply-shortage-nand-flash-and-hard-drive-prices-continue-to-rise/#:~:text=The%20demand%20for%20large%2Dcapacity,for%20both%20HDD%20and%20SSD.

Actually this memory industry upcycle is predicted since Q3'23. Nothing is so special since everyone in the market already acknowledge the trend.
For instance, you may refer to NAND/HDD suppliers like WDC, STX, and Micron share prices.

The market is inefficient, and our job is to discover the inefficiencies and make money from them.

Memory semiconductor industry is a very tough industry.
Oversupply will cause the memory semiconductors suppliers like Samsung, SK Hynix, Micron and etc to cut price in order to clear the inventories. They will start to layoff employees and reduce the output of the production in order to survive the downcycle. The good news is, once the inventory level in the industry is back to normal, the suppliers will start to increase the price of the products. Hence, their margin will slowly back to "normal".

WDC and STX are clearing their inventories, and it will take some time.
I believe if what WDC said the conference is true which the demand is actually recovering, then it is going to take 2-3 quarters until they start to order from their subcomponent suppliers.

Joe Moore

Yes. Okay. I mean that idea that on the hard drive side, your focus isn't on supply growth. Like what if demand comes back? I mean, it seems like it could be a very good backdrop for drives in the sense of what's your ability to respond to a pickup in demand. And because it's such a complicated supply chain with so many parts, and it's been bad for so long, frankly, that I would think some of your subcomponent suppliers have limited flexibility as well.

David Goeckeler

Yes. Well, remember that in the drive business, even you're coming back to more exabytes, but units, it's still going down, right? So we've sized the business for what we think the number of units we need going forward that will keep the market balanced and that's where we want to stay because every quarter you go forward, the mix moves forward to higher capacity drives, you're adding exabytes through more capacity per unit. But I think the drive business has been persistently oversupplied for what, maybe 15 years, 20 years.

I mean everybody talks about the Thailand flood, it's like more, I mean it's like the only time where we had supplied more demand than supply in the drive business was when we had a flood in Thailand. And I was just there like 3 weeks ago, and they still have the thing on the wall that tells you how high the water went, but I don't think the drive industry should be any different than any other industry in the data center, right? You can't just show up in the quarter, you need something and you get it. And that's the way the business has been run for a very long time because of this persistent oversupply.

And I talked about earlier, we've now the downturn was a brutal downturn it had impact on quite frankly, a lot of people's families that work in those places that we are underemployed. And so we want to set the supply at a certain level. And then when we get visibility and conviction on sustained demand, not demand that just shows up for 1 quarter or 2 quarters or 3 quarters. I mean sustained demand for a long time, then we can start talking about if we put supply back in the system. But we're -- we're not at that point yet. We'll see how quickly we get there. I do think we're -- I do think in the next several quarters, we'll get back to supply-demand balance drive industry for maybe the first time in a long time.

Joe Moore

Yes. Okay. That makes sense. And then you guide one quarter at a time, which I appreciate, but any sense on the durability of the good things that you're seeing beyond the current quarter?

David Goeckeler

Well, if I look at the drive business, we're getting -- we're coming back. We did a lot of work during the downturn where we just structurally remove capacity from the system. So I think the drive industry is an industry that has been going through this client to cloud transition for literally 15 years. And the client business, there's just a lot more unit capacity that in the system that is required in a nearline dominated business. So we've just removed that from the system, I think we've signaled that to our customers. We don't have as much capacity as we had in the past. And in return, they're giving us more visibility into what their ordering looks like throughout the rest of the year. So in the drive business, we came into the fiscal year believing we're going to see sequential growth throughout the fiscal year, certainly, in the first half of the year, first 3 quarters of the year, we're seeing that.

And last earnings call, we extended that to this calendar year. So we feel good about that business in a return to kind of reversion to the mean of the 20%, 20% to 25% through cycle exabyte growth we're getting back to that.

Question: Okay. And I'll come back to some of that, but maybe just on the quarter being better, similar on the hard drive side, where are you seeing that gross margin improvement? Is that all price? Or is there other cost element.

Answer: The hard drive business is driven by both better pricing and higher shipments. So we're still in an underutilized state. We expect to be -- still have some utilization this quarter, but we're seeing a little better volume. And of course, when you're -- we have underutilization, we're going to see a margin impact of that. But we're seeing better volume and better pricing in the drive business. And as I think if you roll both of these forward into Q4, we're going to see again, in Q4, we're going to -- our F Q4, which is our June quarter. Again, on the flash business, you're going to see bits flat so we'll see some modest pricing driven improvement there. And then we'll see some modest growth in exabytes and pricing in the drive business. So I would expect some modest sequential growth going into F Q4. Yes. But we're also -- I want to balance it with one thing, we're going to see more variable comp headwinds in outperformance of the business in Q4.

https://seekingalpha.com/article/4676136-western-digital-corporation-wdc-morgan-stanley-technology-media-and-telecom-conference

And then in the HDD business, of course, we saw the big hyperscale players in the U.S. coming back more robust conversations there. We saw good growth in China. We had over 100% sequential growth in China in the HDD business. So we came into the quarter with a lot of strength and a lot of momentum in the business. which brings us to the current quarter. I'll give a little bit of an update on what the environment looks like right now.

I think from when we guided, the business is stronger than that at this point. If we look at the guidance ranges, we provided, we expect to be near the high end of guidance of the range we provided. But each business is performing better from a profitability point of view. Couple of points of additional gross margin in each business. All the rest of the numbers are within guidance ranges. So we expect this quarter, we expect on an EPS basis to exceed the high end of our guidance range.

https://seekingalpha.com/article/4676136-western-digital-corporation-wdc-morgan-stanley-technology-media-and-telecom-conference

And then in the HDD business, of course, we saw the big hyperscale players in the U.S. coming back more robust conversations there. We saw good growth in China. We had over 100% sequential growth in China in the HDD business. So we came into the quarter with a lot of strength and a lot of momentum in the business. which brings us to the current quarter. I'll give a little bit of an update on what the environment looks like right now.

I think from when we guided, the business is stronger than that at this point. If we look at the guidance ranges, we provided, we expect to be near the high end of guidance of the range we provided. But each business is performing better from a profitability point of view. Couple of points of additional gross margin in each business. All the rest of the numbers are within guidance ranges. So we expect this quarter, we expect on an EPS basis to exceed the high end of our guidance range.

https://investors.seagate.com/events/default.aspx

Let's join together and listen to STX's update on their core HDD business.

What is going on? Why not yet publish the QR?

Dufu has ~40% spacer ring market share. Just take notion HDD segment as a reference, we can anticipate a somehow modest recovery...

Notion HDD segment does base plates, spacers, disk clamp... But dufu is spacer pure play company.

Last Friday sell off was to price in the poor performance of its peers. Dufu is quite unique in the supply chain, its metal stamping division takes semiconductor parts, automotive, life sciences and etc. But its main product is the spacer ring, which I anticipate the recovery has definitely started since January of this year.

Take profit...

Notion just got pumped 44%...

Huge pump after QR revealed. Get in the ship before it sails.

That's a 45% increase in HDD revenue...

Notion HDD revenue rebounded from 16million last quarter to 23million this quarter...

The semiconductor industry is definitely going to revive in this second half of this year. There is no turning back, we all are using more digital devices.

All the local OSAT players are getting more orders from China. Customers are looking for a more resilient supply chain instead of focusing all their resources in China. This will benefit our local OSAT players, as well as equipment and precision metal players.

If the hyperscaler is asking for more HDD, WDC and STX also mentioned there is a supply issue due to unhealthy supply chain. Keep in mind that Toyota once shut down their factory due to insufficient disk space. This shows how important is a 'cheap but large capacity storage devices'.

Some suppliers went bust during this HDD recession. WDC and STX mentioned that this recession hurt their supply chain gao gao. Hence, I am very confident that WDC and STX will not terminate their contracts with Dufu. A good relationship with its customer is also a moat.

https://www.storagenewsletter.com/2024/02/16/markets-of-hdd-recording-heads-and-rigid-disk-platters-plunged-y-y-32-and-33-respectively/

https://www.reuters.com/technology/sony-partner-with-seagate-hard-disk-drives-used-ai-nikkei-2024-02-16/

I would say the fabless players will look for more than one supplier...
NO ONE WILL WISH TO RELY 100% on TSMC.
They will place order with other OSAT players like ASE/AMKOR.
No doubt that TSMC will further expand their advance packaging capacities, but do they wish to take orders from chips that are 10nm and below? Keep in mind that the margin is so low, and saturated with China players in this region...

Nearline HDD is mainly used in the conventional data center. AI data center has a lot of issues to solve, power is one of them. FYI, GPU is very power intensive. Hence, you will see headlines like Microsoft is proposing to use nuclear energy for their AI data center and etc... In general HDD uses more power than NAND flash (SSD), so I don't think it will be the main storage that will be used in the AI data center. It will be benefitted by the trend, because generative AI will create a lot of new contents. The new contents have to be stored, and nearline HDD is the most economical way to store these data. This is guided by Seagate in their earnings call, I don't have the details and firm answer for this.

TSMC is just a benchmark. It shows that the semicon industry is reviving again.
The capex guided by TSMC is mainly to expand their manufacturing capacities for AI chips (Nvidia, AMD and etc). Therefore, we can expect that the money will be channelled to a lot of front-end to back-end (CoWos capacity) equipment manufacturers. The equipment manufacturers will look for precision metal players to manufacture the modules (precision parts). Other than TSMC, big players like ASE and Amkor are also expanding to provide advanced packaging (2.5D) services.
This year will be a HUAT year for all the semicon players (not so huat for automotive)...
Logic, Memory, Analog, Sensors... The market will be hotter once Intel introduces their AI PC...

Control cost is by having a lot of suppliers. The more they are, the cheaper it will be the equipment. FYI, companies like ASML has no competitors in their league. The price of a EUV can go up to 500 million USD just for one equipment. This industry is not a "commodity" or any "low barrier to entry industry". The amount of patents and intellectual properties are insane and I don't think in any near future, TSMC will be able to build their own equipment, especially the EUV machine.

Do you really understand how difficult it is to build an equipment like the ASML EUV?
Why US ban China from buying high end EUV from ASML?
Why AMAT, KLA, LAM and etc are still there but not slaughtered by TSMC expansion?

Wait... You mean TSMC wants to build the equipment by themselves?
Do they have the capability?
Why Apple chose to use ICs from other companies instead of building all by themselves?

I have no idea why the stock plunged from RM1.94 to the current price.
But I guess the real reason behind the plunge is due to the sluggishness of the Q4'23 earnings report. Institutions maybe already access the QR report and decided to dump the shares.

Slowly but surely the money will be poured to the equipment manufacturers then further down to the precision metal manufacturers.

TSMC just guided their Capex will be 28-32 billion USD in this year compared to ~30 billion USD last year. Most of their capex will be used to expand their AI related segment. The current bottleneck of Nvidia AI accelerator is the advanced packaging that is used to package the HBM DRAM by using CoWos technique (2.5D packaging). Lots of OSAT, even foundaries like TSMC, Samsung and Intel are expanding their advanced packaging factories.
https://investor.tsmc.com/english/quarterly-results/2023/q4

You believe in what the predictors are saying, but too blind to see what's the "CURRENT TREND". What I witness is that nearline HDD is going to recover throughout this whole calendar year. This is align with what Western Digital and Seagate are guiding.
For your information, Western Digital manufactures NAND flash memory as well.

https://blocksandfiles.com/2024/01/04/nearline-drives-last-hdd-holdout/

Ok, let's put our money on bet.
I suggest you to try to short STX which is listed on Nasdaq. Their main revenue (>80%) is coming from HDD. Instead, I will long Dufu & STX, see who's return is higher in the next 5 years. If what you said is valid, you should be very profitable by shorting STX.

The cost per GB of a large capacity HDD is cheaper by 7x or even more than a large capacity SSD.
So when you think SSD will replace HDD in data center?
Do you know >80% of data in the hyperscale conventional data center are stored in HDD?

Frontkn is definitely going back to RM4...

Frontkn Taiwan division will be very very very busy this year.
TSMC is expanding + utilization soars due to AI chips demand:
H100
MI300

Taiwan exports rose 18.1% year-on-year in January to US$37.19 billion powered by exports of electronic components related to AI, including chips, officials reportedly said, noting it was the 3rd straight month of year-on-year growth and the best increase in 21-months, media report. Electronic component exports rose 7.5% to $13.67 billion, ending 14 straight monthly declines.