Taiwan Trip Reinforces HDD Preference, Memory Price Increase Risk Remains

Overview

Through field research in Taiwan, Morgan Stanley has updated its views on the IT hardware industry. Overall, server demand remains robust, especially with DELL gaining share among enterprise clients and secondary cloud service providers. In contrast, PC demand shows signs of weakness due to declining consumer and SME sales. While memory supply has somewhat improved, shortages persist, particularly for high-end products. For HDDs, rising demand driven by AI has exacerbated supply constraints, with expected continued price increases. In the AI server segment, standardization trends are emerging, potentially weakening OEM competitiveness.

Core views

The server market is currently the most resilient part of the IT hardware industry. DELL leads the server market with strong supply chain relationships and scale advantages, especially among enterprise and secondary cloud service providers. HPQ faces greater pressure from memory procurement costs and margin compression. PC markets show clear signs of weakness. Declining purchasing power among consumers and SMEs has led to falling PC sales and increased risk of channel inventory buildup. High-end PC sales remain solid, but low-end segments struggle to be profitable due to high memory costs. HDD markets face pronounced supply-demand imbalances. With growing AI applications, demand for large-capacity drives has surged, yet supply is constrained by technological bottlenecks. It is expected that a significant shortage will emerge by 2028, with prices potentially reaching 3 cents per GB. In AI servers, L10-level standardization is advancing, which although helps reduce manufacturing complexity, could also weaken OEM bargaining power. DELL will continue to be an important customer for the Vera Rubin platform, though other vendors are also actively positioning themselves.

Analysis framework

This report adopted an on-site research approach, gathering primary data through interviews with local Taiwanese manufacturers and customers, combined with industry analysis to draw conclusions. When evaluating prospects across different sub-markets, the report focused on supply-demand dynamics, pricing trends, and technology development. For individual companies (e.g., DELL, HPQ), it emphasized their competitive advantages and challenges within specific areas. Additionally, the report leveraged historical data and forecasting models to support its viewpoints. For example, when discussing HDD markets, specific EB shortage volumes and price expectations were cited; in analyzing memory supply issues, cost rankings among OEM vendors were mentioned.

Methodology notes

• Supply-Demand FrameworkSupply-demand framework

  Assessing market price trends through supply-demand analysis

  This method compares product supply against demand in the market to forecast price movements. If supply falls short of demand, prices rise; otherwise they fall. This approach is commonly used in commodities and electronics sectors.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Analyzing the impact of sales volume and unit price changes on revenue separately

  Volume-price decomposition is a common financial tool used to understand whether revenue changes stem from volume or price. It is crucial for developing marketing strategies and cost control measures.

• Valuation methodsP/E Valuation

  Using P/E ratio to measure stock value relative to earnings per share

  The P/E ratio reflects how much investors are willing to pay for each dollar of earnings. Higher P/E ratios usually indicate optimistic market sentiment toward future growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Dell Technologies Inc. (DELL.N)

  Strong server demand, stable memory supply, leading AI server positioning

  Strengths

  Strong supply chain management capabilities and broad customer base

  Weaknesses

  Must manage short-term profit pressures from raw material cost fluctuations

  Comparison

  Better memory supply conditions and stronger profitability compared to HPQ

  Risks

  Slower AI capital expenditure could affect long-term growth potential

• Hewlett Packard Enterprise (HPE.N)

  Steady enterprise server orders, intense competition in AI servers

  Strengths

  New growth opportunities from networking device integration

  Weaknesses

  High memory procurement costs, squeezed gross margins

  Comparison

  Lacks sufficient scale effects to offset costs compared to DELL

  Risks

  Juniper Networks integration progress lagging behind expectations

• HP Inc. (HPQ.N)

  Weak PC demand, facing fierce price competition

  Strengths

  High brand recognition, extensive channel coverage

  Weaknesses

  Low profit margins, vulnerable to upstream cost volatility

  Comparison

  Weakest position among the four major PC vendors

  Risks

  Extended memory supercycle further erodes profit margins

• Seagate Technology (STX.O)

  Intensifying HDD supply tightness, huge upside in pricing

  Strengths

  Advanced HAMR technology and high market share

  Weaknesses

  Longer product development cycles hinder quick response to market demands

  Comparison

  Absolute leadership in mechanical hard disk market

  Risks

  Accelerated SSD substitution

• Lenovo (0992.HK)

  Laptop demand exceeds expectations, but second-half growth slows

  Strengths

  Strong channel advantage in China market

  Weaknesses

  Slow recovery in smartphone and data center business

  Comparison

  Outperforms other international brands in Asia market

  Risks

  Memory price increases threaten profit margins

Key data

• HDD Shortage Volume (CY26)300EBExceeds previous estimates of 200EB
• HDD Shortage Volume (CY27)400EBWorsens compared to CY26
• HDD Target Price (CY28)$30/TB (3c/GB)Up nearly 100% from current levels
• DELL AI Server Target Shipments (CY26/FY27)Close to 12k unitsWill be one of the first customers for the Vera Rubin platform
• PC Demand Forecast (H2)Down by up to 20% YoYMainly impacted by weak demand in consumer electronics and SMEs

Impact & implications

The findings from the Taiwan trip show that despite uncertain macroeconomic conditions, there is clear differentiation within the IT hardware sector. Servers and storage equipment benefit from cloud computing and AI developments, showing strong growth momentum; traditional PC markets continue to face downward pressure. For investors, attention should focus more on companies achieving breakthroughs in emerging fields, while being cautious about those overly reliant on mature businesses that might encounter difficulties.

Risks

• Further memory price increases compress profit margins in PC and smartphone businesses
• Accelerating AI server standardization may weaken OEM bargaining power
• Faster public cloud migration could dampen traditional hardware sales

What to watch

• Whether DELL successfully executes its internal operating expense reduction plan
• Whether HPQ takes additional measures to alleviate memory cost pressure
• HPE's Juniper Networks integration progress and synergy realization
• STX's next-generation HAMR technology production timeline and impact on gross margins