Hardware Winners And Losers From The Public Cloud Growth Boom

In a new report, Deutsche Bank analyst Sherri Scribner discussed the disruptive potential of the public cloud model. As market leaders Amazon.com, Inc. AMZN and Microsoft Corporation MSFT pave the path forward for the transition to cloud-based models, the market shift will create a number of winners and losers in the tech space.

HDD Poised To Benefit

While a large number of investors seem to believe that cloud data centers rely solely on solid-state drives (SSDs) and NAND flash memory, Scribner pointed out that public cloud providers are increasing hard disk drive (HDD) storage capacity by 40-50 percent annually.

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“The challenge for the HDD industry has been that nearline or capacity-optimized HDDs (sold to the hyper-scale cloud vendors) only represented 15 percent of revenues in 2014, or 7 percent of units,” she explained.

Deutsche Bank projects that cloud demand will make up 40 percent of HDD revenue by 2020.

Surprise Winners

In addition to HDD suppliers, Scribner sees volume server vendors as another group that is well-positioned to benefit from the cloud transition. Hewlett-Packard Company HPQ has even developed a number of servers specifically with the cloud in mind, including Cloudline and Moonshot.

“We estimate HP has roughly 30 percent share of public cloud server sales today, and this segment of the market continues to see strong growth,” Scribner added.

Top Plays

Deutsche Bank’s top hardware plays on the cloud transition are Buy-rated Western Digital Corp WDC and Seagate Technology PLC STX.

The firm names stand-alone storage companies EMC Corporation EMC and NetApp Inc. NTAP as the biggest potential losers from the shift to cloud storage.

Disclosure: The author holds no position in the stocks mentioned.