IT Hardware Demand Diverges, Server and iPhone Strong, PC and Android Phones Pressured

Overview

Morgan Stanley's report points out that IT hardware demand shows a clear divergence trend. Demand for servers, HDDs, and iPhones remains robust, while PCs and Android smartphones face pressure from memory inflation, CPU shortages, and consumer weakness. Rising DRAM and NAND prices force OEMs to seek long-term agreements and alternative suppliers. Apple is building memory inventories and may raise iPhone prices to offset cost increases. HDD supply tightness supports favorable pricing for STX and WDC. PCs and Android smartphones face the biggest risks, with unit pressure and rising channel inventory.

Core views

The report highlights significant divergence in IT hardware demand. Demand for servers, HDDs, and iPhones remains strong, while PCs and Android smartphones face pressure from memory inflation, CPU shortages, and consumer weakness. Rising DRAM and NAND prices force OEMs to seek long-term agreements and alternative suppliers. Apple is building memory inventories and may raise iPhone prices to offset cost increases. HDD supply tightness supports favorable pricing for STX and WDC. PCs and Android smartphones face the biggest risks, with unit pressure and rising channel inventory. Additionally, AI server demand is strong, although SMCI’s supply chain conditions are stricter, potentially favoring Dell and HPE. Apple’s sales of iPhone 18 Pro and Pro Max are expected to grow by around 30%, while its first foldable iPhone has a full-cycle shipment target of 20 million units.

Analysis framework

The report analyzes supply and demand conditions across different hardware segments, incorporating market data and industry dynamics to evaluate performance in various sub-markets. The institution focuses on DRAM and NAND price trends, as well as OEM strategies such as entering long-term agreements and finding alternative suppliers. It also monitors Apple’s inventory management and product planning, along with HDD market supply tightness. For the PC and Android smartphone markets, it assesses the impact of CPU shortages and consumer weakness, and evaluates the responses of relevant companies.

Methodology notes

• Industry/sector analysis frameworkSupply and Demand Framework

  The report uses a supply and demand framework to analyze the IT hardware market, focusing on supply and demand changes in different sub-markets.

  The supply and demand framework is a core method for analyzing market dynamics, assessing market trends through evaluating changes in supply and demand.

• Valuation MethodPE/PEG valuation

  The valuation methods mentioned in the report include PE/PEG valuation.

  PE/PEG valuation is a commonly used method for valuing companies, comparing P/E ratios to earnings growth to assess company value.

Asset mapping & comparison

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

• Apple, Inc. (AAPL.O)

  Apple is building memory inventories and may raise iPhone prices to offset cost increases.

  Strengths

  Apple has scale advantages in memory procurement, allowing it to build inventories to mitigate cost increase pressures.

  Weaknesses

  Rising iPhone prices may affect market demand.

  Comparison

  Compared to competitors, Apple has greater flexibility in memory procurement and product pricing.

  Risks

  Memory cost increases may impact iPhone profit margins.

• Seagate Technology (STX.O)

  HDD supply tightness supports favorable pricing for STX.

  Strengths

  STX holds a leading position in the HDD market, and supply tightness benefits it.

  Weaknesses

  HDD market demand may be affected by weak PC and Android smartphone demand.

  Comparison

  Compared to Western Digital (WDC.O), STX has an advantage in the HDD market.

  Risks

  Fluctuations in HDD market demand may impact STX’s performance.

• Western Digital (WDC.O)

  HDD supply tightness supports favorable pricing for WDC.

  Strengths

  WDC holds a leading position in the HDD market, and supply tightness benefits it.

  Weaknesses

  HDD market demand may be affected by weak PC and Android smartphone demand.

  Comparison

  Compared to Seagate Technology (STX.O), WDC also holds an advantage in the HDD market.

  Risks

  Fluctuations in HDD market demand may impact WDC’s performance.

Key data

• DRAM Price Quarter-over-Quarter Growth25-30%C3Q26 DRAM prices are expected to increase 25-30% quarter-over-quarter.
• NAND Price Quarter-over-Quarter Growth20-40%C3Q26 NAND prices are expected to increase 20-40% quarter-over-quarter.
• iPhone 18 Pro and Pro Max SalesApproximately 81 million unitsSales of iPhone 18 Pro and Pro Max are expected to increase by about 30% compared to iPhone 17 Pro/Pro Max.
• HDD Supply TightnessNear 100%HDD deployment rate in hyperscale data centers is near 100%.
• PC Sales Year-over-Year Decline15-20%2026 PC sales are expected to decline 15-20% year-over-year.

Impact & implications

The report suggests that demand for servers, HDDs, and iPhones remains strong, while PCs and Android smartphones face pressure. Rising DRAM and NAND prices force OEMs to seek long-term agreements and alternative suppliers. Apple is building memory inventories and may raise iPhone prices to offset cost increases. HDD supply tightness supports favorable pricing for STX and WDC. PCs and Android smartphones face the greatest risks, with unit pressure and rising channel inventory. AI server demand is strong, but SMCI’s supply chain conditions are stricter, potentially favoring Dell and HPE. Apple’s sales of iPhone 18 Pro and Pro Max are expected to grow by around 30%, while its first foldable iPhone has a full-cycle shipment target of 20 million units.

Risks

• Rising memory prices may affect profits for PCs and Android smartphones.
• HDD supply tightness could lead to price volatility.
• Rising iPhone prices may affect market demand.

What to watch

• DRAM and NAND price trends
• Apple's memory procurement and iPhone pricing strategies
• HDD supply conditions and price changes
• Changes in demand for PCs and Android smartphones