Seagate Couldn't Pass Up Chance to Buy Samsung's HDD Division

 
 
By Chris Preimesberger  |  Posted 2011-04-19
 
 
 

The April 18 news about Samsung Electronics slapping an official "For Sale" sign on its hard disk drive manufacturing business was barely through the news cycle when the second-largest player in the world market, Seagate Technology, went to the bank, counted out $1.375 billion and offered to take it over. 

Samsung, of course, accepted on April 19. The move better coordinates the two companies' existing partnership for NAND flash development. It also will put Seagate, which owned 29 percent of the world's HDD market coming into the Samsung deal and now will own 40 percent, back into the market share ballgame against WD. 

WD, formerly known as Western Digital, controls about 49 percent following the March 2011 acquisition of Hitachi's HDD business for $4.3 billion. 

Seagate, which also makes NAND flash solid-state drives-which most IT people believe are the long-term future of storage media-simply had to take the opportunity the Korean IT giant set in front of it. It really had no other choice or else WD would run away with the bulk of the business, even though Seagate isn't exactly the most financially healthy company in the world right now.

HDD Business Is All About Scale

The HDD business is all about scale. Something storage analyst Mark Peters told eWEEK in analyzing the WD-Hitachi deal two months ago holds up well for an analysis of this deal. 

"A huge amount of this is about scale, economies of scale, scale of R&D, scale of portfolio ... and did I mention scale?" Peters, a senior analyst at Enterprise Strategy Group, told eWEEK at the time. "Making money in this high-volume business requires scale in most respects." 

What does this merger do to the market and all its smaller players? 

"Well it certainly looks like a two-horse race with WD now," Yankee Group analyst Zeus Kerravala told eWEEK. "I think the competitive environment for the rest of the field is now very difficult. 

"Seagate now can extend their value propositions to other Samsung products, such as PCs. So they can control the drives and some of the end markets, too. That's a powerful combination." 

The NAND flash agreement between Seagate and Samsung was also a key part of this transaction. 

"Seagate also gets caught up in flash; Samsung was much further ahead there," Brian Babineau, a vice president at Enterprise Strategy Group, told eWEEK. "But the market consolidation is an obvious benefit; getting ahead in emerging technology markets is not so obvious, but critical."

StorageIO principle analyst Greg Schulz told eWEEK that he thought Seagate was making "a great move."

"This should send a message to the industry as well as to investors that Seagate is alive and looking to maintain or grow their business -- that they see a future in hard disk drives that will require driving more efficiencies associated with volume shipments," Schulz said.

"There is no such thing as an information recession, plus as a society, we are addicted to information -- and that data needs to be stored somewhere locally or in the cloud, which means more disk drives someplace!"

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