U.S. Tariffs Set to Impact HDD and SSD Manufacturers: What’s Next for Storage Costs?

With the recent U.S. import duties targeting multiple industries, the data storage sector is no exception. The imposed tariffs will have a profound impact on manufacturers of hard disk drives (HDDs) and solid-state drives (SSDs), potentially increasing storage costs. Here's a breakdown of how these tariffs will affect the storage landscape and what the future holds for manufacturers and consumers alike.

1. The Growing Impact of U.S. Tariffs on Storage Industry

The newly imposed U.S. tariffs are aimed at various industries, including the technology sector. Among the hardest-hit are HDD and SSD manufacturers, who face an uncertain future as they navigate the complexities of these duties. While some sectors, like tape drives, may escape the worst of the tariff impacts, HDD and SSD producers will bear the brunt, facing significant cost increases and potential supply chain disruptions.

2. How Tariffs Affect HDD Manufacturers

HDD Supply Chains: A Global Web

Three major players dominate the HDD market: Seagate, Western Digital, and Toshiba. These companies rely on complex global supply chains, with manufacturing facilities across the U.S., China, Japan, Malaysia, and Thailand. Here's a closer look at their operations:

• Seagate: Product development in the U.S. and Singapore, media fabrication in Japan or Singapore, and assembly in China and Thailand.
• Western Digital: Similar operations with media production in Malaysia, assembly in Thailand, and head manufacturing in the U.S.
• Toshiba: R&D and high-value component manufacturing in Japan, with mass assembly in China, the Philippines, and Japan.

Due to the diversity of their supply chains, these companies face varying tariffs based on the country of origin of their components. Drives produced in China are hit hardest, with import duties ranging from 17% to 124% depending on the location of assembly.

Potential Workarounds: Increasing U.S. Operations

To mitigate these costs, HDD manufacturers like Seagate and Western Digital may look to ramp up U.S.-based production to ensure that at least 20% of their drives are “American-made,” thereby reducing tariffs. However, shifting operations from China or Thailand will be a complex and costly process, especially considering the need for cleanroom facilities to assemble these sophisticated devices.

3. The SSD Situation: A Different Set of Challenges

Unlike HDDs, SSDs are made from 3D NAND memory, and their manufacturing process involves multiple players such as Micron, Samsung, SK hynix, and Kioxia. Though these companies have operations in China, the real issue lies in the testing and packaging of SSDs. Under U.S. Customs regulations, the “country of origin” for 3D NAND memory is determined by where the substantial transformation occurs. In many cases, this means that products tested and packaged in China are considered to have originated there, even if the memory was fabricated in Japan or Singapore.

Tariffs on Finished SSDs: Rising Costs for Consumers

While memory chips themselves are not currently subject to tariffs, finished SSDs are considered “dutiable goods,” meaning they face duties of up to 25%. To avoid these tariffs, SSD makers will likely need to shift production to countries that are either not subject to U.S. tariffs or are protected under trade agreements like the USMCA (e.g., Mexico or Canada).

Companies like Micron, Kioxia, and SanDisk may also consider moving production to the U.S. to mitigate the tariff burden. However, this will not completely avoid tariffs on the 3D NAND chips themselves once semiconductor duties are applied. Unlike HDD makers, SSD producers have more flexibility to adjust their manufacturing locations.

4. Impact on Tape Drives and Optical Discs

Tape Drives: A Less-Affected Sector

Unlike HDDs and SSDs, tape drives are relatively insulated from the tariff situation. For instance, IBM manufactures LTO tape drives in the U.S., avoiding the worst of the duties. Similarly, Fujifilm makes tapes in Massachusetts, ensuring they remain tariff-free. However, companies like Sony, which produce tapes in Japan, face a 24% tariff when shipping to the U.S.

Optical Discs: Varying Tariffs Across Regions

The impact of tariffs on Blu-ray and DVD discs is more region-specific. Production in China, India, Japan, and Taiwan will each face different tariffs, with no clear indication that manufacturers will move production to the U.S. However, pre-recorded discs—such as those for games and movies—could see price increases as a result of the tariffs.

5. What’s Next for HDD and SSD Manufacturers?

Possible Industry Shifts

The immediate concern for HDD and SSD manufacturers is finding ways to mitigate tariff impacts without compromising on production quality or speed. This may involve relocating manufacturing to other countries, increasing U.S. production to qualify for tariff reductions, or developing new ways to structure supply chains.

The Future of U.S. Storage Costs

As tariffs continue to affect imported HDDs and SSDs, consumers can expect price increases in the short term. However, the situation is fluid, and the 90-day tariff suspension (beginning April 10) may offer temporary relief, especially for SSDs. The long-term impact will depend on how quickly manufacturers can adapt to the evolving trade environment.

6. Conclusion: A Shift in the Storage Industry’s Landscape

The tariffs imposed on HDD and SSD manufacturers represent a significant challenge for the data storage industry, with the potential for higher prices for consumers. While HDD manufacturers face complex supply chain issues due to their reliance on China, SSD makers have more flexibility to shift production. As the situation develops, we may see a reshaping of where and how storage devices are made, but for now, higher costs seem inevitable.

The key takeaway for consumers: expect storage prices to rise, but also watch for shifts in manufacturing locations and potential innovations that may help mitigate costs in the long run.