New US tariffs will have a strong impact on HDDs and SSDs costs

Import rates announced by the US should have a strong impact on the data storage sector. The effects should be different on hard disks, solid state units, tapes and optical discs by the differences between technologies.

HDD and SSD manufacturers should be the most affected. Mainly due to the complex logistics chain that many companies use. And that’s right with the 90 -day suspension in reciprocal tariffs that Trump announced today, April 10.

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According to US customs law, The “country of origin” is determined by the place of the last substantial transformation, the point at which the product is going through a major change. This means that in a product with a logistics chain with 5 countries, probably only the last one will be considered as a “country of origin.”

The problem is that in many cases this country is China, whose imposed tariffs reach 124%.

In addition, there are special rules such as the United States-Mixico-Canada Agreement (USMCA) which provides for special tariff rules considering that there are products with logistics chains through the three countries. For some companies, this agreement may be an alternative to avoid at least part of the rates.

HDD Productive Chains

The hard drives (HDDs) are storage devices with the most complex supply chain today. And there are three HDD manufacturers: Seagate, Toshiba and Western Digital.

In the case of Seagate, the operation involves the development of products in the US and Singapore; head manufacturing in the United States and Northern Ireland; Production of substrates in Malaysia; Media manufacture in Singapore or Japan; and manufacture of drives and subsets in China and Thailand.

The Toshiba HDD supply chain involves R&D and manufacturing high value components in Japan. Mass assembly and component integration are mainly based on China, Philippines and Japan.

Finally, Western Digital develops its HDDs in the US and Japan. Media substrates are produced in Malaysia, but the manufacture itself occurs in China or Japan. Heads are processed in the US, but the final assembly of head and gimbal occurs in Philippines and Thailand. The HDDs themselves are manufactured in Malaysia and Thailand.

Alternatives for HDD companies

Although the three companies, Seagate, Toshiba and Western digital have different supply chains, their configurations are subject to substantial US import tariffs. Particularly considering the tariffs imposed on China. However, other countries also weigh in jail, such as Malaysia (24%), Philippines (17%) and Thailand (36%).

If Toshiba transfer more production to the Philippines, it can avoid paying extremely high tariffs in the US. Although, Seagate is in a much more complicated situation, as a significant portion of the company’s hard drive is manufactured in China.

Considering that HDDs are mounted on clean rooms, transferring assembly out of China or Thailand is quickly and complicated. In addition to the construction of new factories, it is necessary to reconsider logistics.

And it is the logistics that should make it difficult to bring production into the USMC. Most likely, it will be cheaper to look for another Asian country and insert it into the logistics chain that create the entire production chain in the US and neighbors.

In the case of Seagate and Western Digital, companies should increase their US operations to prove that there is 20% of American content in their rigid records. With this, they can reduce rates, but may not succeed in the onslaught.

Situation Situation of SSD Chains

In the case of SSDs, the situation is a little different. There are six companies in the world that produce high volume Nand 3D memory: Kioxia, Micron, Sandisk, Samsung, Sk Hynix and YMTC. Although, There are dozens of SSD manufacturers and most operate in China or other countries with low labor costs.

E, In the case of these devices, it is relatively easy to set the assembly, as no clean rooms are required. Which means that in the case of SSDs, companies can see the advantage of migrating the logistics chain, or part to the USMC. However, even if they make this decision, it will not be immediate.

Micron, Kioxia and Sandisk are the only major 3D Nand manufacturers that do not have wafers manufacturing capacity in China. However, the three companies produce their SSDs in China. Therefore, to avoid the most punitive tariffs of the US government, these companies will have to start making their units elsewhere.

And this also applies to outsourced SSD manufacturers.

SSDs da Samsung, SK Hynix e Solidigm

Most of Samsung and SK Hynix Nand 3D is manufactured in South Korea, but they also have 3D Nand production capacity in China, especially to meet local demand for flash memory and SSDs.

However, Samsung and SK Hynix retail SSDs are mounted in South Korea, so US customs are likely to consider them Korean products subject to an import tariff of 10%. The rate would be 25%, but part of the taxation is suspended for 90 days.

It is not yet known what Solidigm, subsidiary of SK Hynix, will do. The company exclusively uses memory produced at the company’s factory in Dalian, which belonged to Intel. If the US government decides to impose prohibitive rates on Nand 3D chips manufactured in China, Solidigm will be in a terrible situation.

And the same will be valid for Micron, Kioxia and Sandisk.

Ribbons and Optical Discs

Ribbon units and optical discs undergo different effects. IBM manufactures LTO tape units in Arizona and escapes from tariffs except imported parts. Japanese Fujifilm manufactures Massachusetts tapes, which also leaves her safely about tariffs. Sony, however, produces in Japan, which forces it to pay at a 24% rate on imported tapes for the US.

Blu-ray and DVD discs are manufactured in China, India, Japan and Taiwan. The specific rate of each country will be applied to sending these items to the US, and It is unlikely that someone transfer the production of records to the USA. It remains to be seen how fares will affect pre-recorded records with games and movies.

Fonte: Blocks & Files.