Hard Drives and SSDs to Face Sharp Price Increase Due to US Tariffs

The recently imposed tariffs on imports to the United States will affect the vast majority of industries, and data storage will be no exception. The technologies behind hard drives and solid-state drives are significantly different, so the impact of the tariffs will vary across these segments. But it promises to be significant.

Image source: samsung.com

Hard drives are the most technically complex storage devices today, and they have the most complex supply chain. There are three manufacturers: Seagate, Toshiba, and Western Digital. Seagate designs its products in the US and Singapore, the heads are made in the US and Northern Ireland, the wafers are made in Malaysia, the storage media are made in Singapore and Japan (the latter when Seagate bought platters from Showa Denko), and the drives and components are made in China and Thailand.

Toshiba’s expensive hard drive components are developed and manufactured in Japan (the wafers are purchased from Showa Denko), and mass assembly and component integration takes place in China, the Philippines, and Japan. Western Digital develops hard drives in the US and Japan, with wafers manufactured in Malaysia, wafers manufactured in China and Japan (in the case of Showa Denko), head machining in the US, but final assembly in Malaysia and Thailand.

Seagate, Toshiba, and Western Digital have different supply chains, but their setups are subject to the threat of significant U.S. import tariffs: China (124%), Malaysia (24%), the Philippines (17%), and Thailand (36%) are all involved. Toshiba could reduce the tariffs by shifting more production to the Philippines; Seagate, which is more closely tied to China, has a more complicated situation: its hard drives are assembled in clean rooms, and quickly moving facilities out of China and Thailand would be expensive and difficult. U.S. customs would likely base the tariffs on the final assembly point of the drives; Seagate and Western Digital are likely to increase their U.S. presence to prove that their drives use 20% U.S. components, but it’s unclear whether they will succeed.

Image source: samsung.com

The situation with SSDs is different. Six companies produce 3D NAND memory in large quantities: Kioxia, Micron, SanDisk, Samsung, SK hynix, and YMTC; but finished solid-state drives are manufactured by dozens of companies, most of which have set up production in China, where labor costs are low. Only Kioxia, Micron, and SanDisk do not produce wafers in China, but they test and package the memory in that country. According to U.S. customs legislation, the country of origin is determined by the place of the last significant transformation of the goods – the point where they undergo serious changes. That is, if the wafer is made in Japan or Singapore, but cut and packaged in China, then the origin of the memory chip will also be listed as Chinese.

That’s not a problem right now because memory chips are currently exempt from the tariff, but Kioxia, Micron, and SanDisk make SSDs in China, which are finished goods that are subject to the tariff. So to remain competitive in the U.S., the three companies will have to set up SSD production elsewhere, as will third-party drive makers. Fortunately, that’s relatively easy to do because SSD assembly doesn’t require clean rooms. The vast majority of Samsung and SK hynix’s 3D NAND chips are made in South Korea, but both companies have chip manufacturing facilities in China, which are used primarily to meet local demand. Retail SSDs from Samsung and SK hynix are assembled in South Korea, so U.S. customs will consider them Korean products and subject them to a 25% tariff — although the additional 15% tariff on Korean goods was suspended for 90 days on April 10.

For obvious reasons, 3D NAND chip makers are unlikely to ship products from China to the US to avoid tariffs. It is unclear what SK hynix’s Solidigm, which only uses memory manufactured at its Dalian, China, plant — previously owned by Intel — will do. If the US government decides to impose prohibitive tariffs on 3D NAND chips manufactured in China, Solidigm will have problems, as will Kioxia, Micron, and SanDisk. When shipping SSDs to the US, companies will have to move their assembly either to countries with reduced tariffs or to the US itself. And then they will have to take into account tariffs on memory chips and controllers when such tariffs are introduced. But unlike hard drive makers, SSD brands will have a much easier time.

There are alternatives, each with its own particularities. IBM makes tape drives in Arizona, and they are not subject to tariffs; Japan’s Fujifilm makes them in Massachusetts, so it should not face any problems either; but Sony makes them in Japan, and it is subject to a 24% tariff when importing products into the United States. Blu-ray and DVD discs are made in China, India, Japan, and Taiwan—if these goods are shipped to the United States, the tariffs will apply, and it is unlikely that anyone will move disc production to the United States. So discs with games and movies will become more expensive in the country.