TradingKey - On October 2 ET, after Toshiba announced plans to expand data center hard disk drive (HDD) capacity, Western Digital (WDC) and Seagate (STX) fell 10.22% and 10.21% respectively that day. The expansion plan sparked market concerns over future supply growth, HDD pricing, and manufacturers' profit margins.

This capacity expansion targets nearline HDDs, directly competing with similar products from Western Digital and Seagate. Kioxia primarily operates in NAND flash memory and solid-state drives (SSDs); the potential impact mainly depends on the cost gap between HDDs and SSDs, as well as whether customers adjust their storage procurement ratios.

Can Toshiba's Capacity Expansion Lower Hard Drive Prices?

Toshiba announced on October 2 that its Philippine subsidiary TIP has commenced production and completed its first shipment from the expanded nearline HDD production line at Laguna Technopark. TIP plans to increase its annual capacity, measured in total storage capacity, to nearly double that of fiscal year 2025 by fiscal year 2027. The announcement did not disclose the growth in HDD unit shipments.

According to The Wall Street Journal, Morgan Stanley believes after communicating with HDD industry participants that the market has overestimated the supply impact of Toshiba's capacity expansion, noting that the expansion timeline is aggressive and that there are no signs Toshiba plans to expand its market share through price cuts.

Toshiba's capacity expansion may increase downward pressure on hard drive prices, but whether prices drop remains dependent on actual delivery scale and demand growth. If demand can absorb the additional supply, prices will remain supported; if supply growth exceeds demand growth, Western Digital and Seagate may face greater price competition.

Western Digital, Seagate: Pricing and Gross Margins in Focus

Toshiba's nearline HDD capacity expansion may impact the order allocation, contract pricing, and market share of Western Digital and Seagate. The actual impact will depend on the scale of new product deliveries and changes in customer procurement demand.

Western Digital completed the spinoff of its flash memory business in February 2025, with SanDisk (SNDK) becoming an independent publicly listed company, and the related business is no longer consolidated into WDC's financial statements. Post-spinoff, Western Digital focuses on the HDD business, making its performance more directly dependent on hard drive sales and profitability.

For both companies, shipped capacity and price per TB jointly affect revenue. If the decline in price per TB exceeds the decline in cost per TB, gross margin may come under pressure; increasing single-drive capacity and reducing cost per TB will help mitigate the impact of price declines on profit margins.

Key focus areas going forward include price per TB, the share of high-capacity products, customer procurement commitments, and gross margin. Toshiba's capacity expansion may increase medium-term competitive pressure, while the earnings performance of both companies remains dependent on demand growth, product upgrades, and cost control.

Kioxia: Focus on Enterprise SSD Orders

Kioxia, formerly Toshiba Memory, primarily operates in NAND flash memory and SSDs. The expansion in the Philippines pertains to Toshiba's HDD business, and the relevant announcement does not involve Kioxia's NAND expansion.

From a customer procurement perspective, if HDD supply improves and the price gap between HDDs and SSDs widens, certain high-capacity storage projects with lower access speed requirements may be more inclined to adopt HDDs. This represents a potential impact, and there is currently no basis to conclude that Kioxia's orders will decrease as a result.

For operations with high requirements for low latency and high throughput, SSDs remain in demand. Kioxia's future performance will primarily hinge on NAND selling prices, enterprise SSD orders, product mix, and delivery schedules.

Western Digital and Seagate primarily face competition among similar HDD products, while Kioxia may be indirectly affected by shifts in procurement for certain storage applications. If new HDD supply growth outpaces demand growth, price competition may intensify; whether Kioxia will be impacted remains to be seen through changes in customer procurement ratios and enterprise SSD orders.

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