Storage becomes more strategic amid AI buildout

Storage vendors are beginning to lock up long-term supply deals with customers as systems become more strategic amid the AI buildout.

Earnings results from Western Digital, SanDisk and Seagate all had a common theme: Capacity for the calendar year is accounted for already. As if memory prices weren't enough to worry about, enterprises with on-premises infrastructure are going to face rising prices too. Servers, storage and likely networking will be more expensive due to memory or capacity constraints. 

The storage market used to be summed up in just a few words: Meh, commodity and boring come to mind. Now drives storing data are strategic. 

• Seagate: Agentic AI, video to fuel storage demand spike
• Memory price surge may crimp on-premise AI, data center deployments

Western Digital CEO Tiang Yew Tan provided the state of storage on the company's second quarter earnings call. "It is data that is needed to fuel the entire AI process from training to inference to enable stronger models and sharper inference results. And as more data is generated and the value of data increases, the demand to store it is expanding at a rapid rate," he said. 

Tan said Western Digital is working with its cloud customers to manage strong demand for high-density storage systems. 

"We have firm purchase orders with our top seven customers through calendar year 2026. We also have in place robust commercial agreements with three of our top five customers, two through calendar year 2027 and one through calendar year 2028. These agreements indicate a strong trust that we have built with our customers and confidence in our ability to meet their exabyte needs," said Tan. 

Western Digital hosts an innovation day in New York on Tuesday. As for Western Digital, second quarter revenue was up 25% to $3.02 billon with net income of $1.8 billion, or $4.73 a share. And the business continues to strengthen with revenue of about $3.2 billion. 

David Goeckeler, SanDisk's CEO, had a similar story. SanDisk is best known for its solid-state consumer drives, but its data center business is surging. 

"AI continues to drive a step change in demand with data center and edge workloads expanding system complexity and storage content requirements," said Goeckeler. "NAND is now recognized as indispensable to the world's storage needs, driving a foundational shift in how commercial relationships between suppliers and customers are structured. Supply certainty, longer planning horizons and multiyear commitments are increasingly essential to support structural demand that extends beyond the traditional cyclical model of our market."

SanDisk is moving from quarterly negotiations with customers to multi-year agreements. "Enterprise SSD demand is accelerating across the ecosystem as AI workloads scale with inference in particular, driving a meaningful increase in NAND content per deployment," said Goeckeler, who said demand was strong among cloud providers, edge compute and enterprise data centers. 

SanDisk reported second quarter revenue of $3.03 billion, up 31% from a year ago, with net income of $803 million, or $5.15 a share. SanDisk raised its third quarter revenue outlook to $4.4 billion to $4.8 billion. 

Seagate CEO William Mosley had a similar take after strong results. Mosley said: 

"

We continue to operate in an exceptionally strong demand environment, particularly within the data center end markets. In the December quarter, we saw sustained demand growth for our high capacity nearline drives across global cloud data centers as well as continued improvement from the enterprise edge. Based on our build-to-order pipeline, we anticipate these positive demand trends will continue for some time.

Our nearline capacity is fully allocated through calendar year 2026, and we expect to begin accepting orders for the first half of calendar year 2027 in the coming months."

 

These storage vendors feed the upstream systems players ranging from IBM to Dell to NetApp and Pure Storage. The storage systems makers are going to see higher memory and hard drive costs that'll likely be passed on to the IT buyers.