Vendors, Partners Making Moves To Combat Price Hikes As Flash Memory, SSD Shortage Continues

Vendors are moving to shore up supply and adjust prices in response to a continuing global NAND flash memory shortage, leaving solution providers anxiously anticipating how the situation will shake out for them and their customers.

The tight supply of NAND flash memory, which comes as memory manufacturers are shifting towards producing higher density 3D NAND chips, is impacting both those devices which use flash memory as a primary storage medium as well as those in building SSDs for use in servers and storage.

It affects a wide swath of the IT industry from smartphones and PCs whose customers are demanding ever-increasing amounts of local storage to servers which are being configured with larger amounts of storage to enterprise storage vendors looking to meet the need for all-flash storage solutions.

"The SSD market shortage is a big issue, and the industry has already made price moves," said a senior Dell EMC executive. For Dell EMC, the situation is "purely a component cost realignment, and it's a small percentage," the executive said.

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Being perhaps the largest customer to the major flash memory suppliers may give Dell EMC pricing and parts availability advantages, and those advantages will be shared with partners and customers, the executive said.

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However, estimates indicate SSD prices could rise 10 percent or more as a result of the memory chip shortage, and vendors that don't enjoy the advantages of being an industry behemoth are keeping a close eye on their stockpiles and trying to avoid passing increased costs to partners and customers.

During NetApp's third fiscal quarter 2017 financial analyst call, CEO George Kurian addressed possible investor concern during his opening statements. "Although NAND supply is tight, we are confident in our ability to meet demand," Kurian said.

Asked by an analyst about NAND pricing trends, Kurian said his company has been cautious about passing on all cost increases to customers in part because of SSD availability and pricing.

"We've put in place the capability to meet a short supply," Kurian said. "We're wanting to guarantee a short supply to our end customers, and that has been a priority ahead of specific pricing agreements."

Ron Pasek, NetApp's executive vice president and chief financial officer, told analysts at the same meeting that he expects NAND memory supplies to remain tight for the rest of this summer before easing late in the calendar year, which will help reduce prices.

Pasek also told analysts not to worry about NetApp. "With respect to NAND, we've secured supply for the remainder of this calendar year, at which point I don't think this is going to be an issue anymore from a supply standpoint," he said.

Still, solution providers say they're in the dark about how vendors expect them to handle possible shortages and price increases, however small.

"I have no idea. I'm just keeping my fingers crossed," said a top executive at a large solution provider that works with several major vendors.

System builders, on the other hand, have a better grasp on the situation. Dominic Daninger, vice president of engineering at Northern Computer Technologies, a Burnsville, Minn.-based custom system builder with a focus on high performance computing and enterprise solutions, said NAND flash is in tight supply.

"Prices are definitely going up," Daninger told CRN. "We're being very careful on our quotes so we don't get stretched out too far."

Nor-Tech does a significant amount of enterprise flash storage systems for its high performance computing customers, and has had to reach out to secondary sources of NAND flash memory much more than usual, Daninger said.

"But we often have another vendor trying to get in with us," he said. "This offers us a chance to try them out, so it works both ways."

Rick Gouin, CTO of Winslow Technology Group, a Waltham, Mass.-based solution provider that works closely with Dell EMC, said rising prices for all-flash arrays could mean a boon for hybrid systems.

"An SSD shortage means that the prices for flash will go up, which essentially could move the adoption timetable back … For us and our customers, it means that our hybrid configurations could have less flash and more spinning disk, just like they did when SSD prices were higher," Gouin said.

"If we look back to our configurations when SSD prices were higher, the name of the game was figuring out the minimum amount of flash that a customer could get by with for a given workload," Gouin said. "If the prices go up enough, we will begin to re-institute some of that discipline."

Existing enterprise storage vendors such as Dell EMC, NetApp and Hewlett-Packard Enterprise, as well as newer storage vendors Pure Storage, have been pushing all-flash solutions aggressively as the technology gains wide acceptance and becomes the primary storage solution for enterprise customers.

NAND memory supply in 2016 tightened compared to 2015 as manufacturers moved to re-tool their manufacturing lines to meet rising demand for newer technologies, especially for high-density 3D NAND.

DRAMeXchange, the memory and storage division of TrendForce, a Taiwan-based global market intelligence firm, in December, reported that strong demand from smartphone manufacturers, growing SSD demand, and an increase in the average density of key memory modules further aggravated the shortage. That caused quarter-over-quarter prices during the fourth quarter to rise by up to 13 percent for certain memory modules and SSDs for both client and enterprise use to rise by up to 10 percent.

Although the global NAND flash memory shortage reached its peak in the fourth quarter of 2016, DRAMeXchange expects prices in the current calendar quarter to rise about 10 percent over the previous quarter.