A day after speculation in The Wall Street Journal suggested Samsung wished to sell its hard drive business and Seagate was a likely suitor, this scenario has come to pass.
In a press release issued at 6:30 PM today, Eastern Australian time, Seagate issued a press release that stated it and Samsung “... have entered into a definitive agreement under which Seagate and Samsung will significantly expand and strengthen their strategic relationship by further aligning their respective ownership, investments and key technologies. “
The release goes on to outline the following “major elements”:
- Samsung combining its hard disk drive (HDD) operations into Seagate
- Extending and enhancing the existing patent cross-license agreement between the companies
- A NAND flash memory supply agreement under which Samsung will provide Seagate with its market-leading semiconductor products for use in Seagate’s enterprise solid state drives (SSDs), solid state hybrid drives and other products
- A disk drive supply agreement under which Seagate will supply disk drives to Samsung for PCs, notebooks and consumer electronics
- Expanded cooperation between the companies to co-develop enterprise storage solutions
- Samsung receiving significant equity ownership in Seagate
- A shareholder agreement under which an executive of Samsung will be nominated to join Seagate’s Board of Directors
Seagate will hand over $US1.375 billion to Samsung, half in cash and half in shares.
The release goes on to say the alliance will help both companies to target markets including “ ... mobile computing, cloud computing and solid state storage.”
Intriguingly, the release says Seagate expects to “strengthen its relationship with TDK Corporation,” one of its current suppliers of solid state memory.
The alliance comes just weeks after Western Digital (WD) acquired Hitachi GST’s magnetic disk business, a transaction that gave WD the global lead in all hard disks. The company continued to trail Seagate in the higher-profit enterprise sector, a gap Hitachi GST’s business was expected to address.
Seagate, for its part, has been late to the party with solid state disks. Industry watchers have noted that, lacking a silicon foundry of its own, the company relies upon third parties for components. Seagate is clearly interested in solid state disks: on April 5th the company briefed SearchStorage ANZ on new solid state drives that use MLC flash technology. It has also pioneered drives that blend solid state and magnetic media.
Samsung, for its part, has never made a serious dent in the consumer or enterprise disk markets. Its consumer models have generally been sold on price in Australia, while confusion has surrounded the extent of its local enterprise disk range with the company’s website offering contradictory listings of the products it sells and supports in this country. When SearchStorage ANZ inquired about this state of affairs, we were told by Samsung’s previous PR company that no-one in the Australian office was aware of the definitive list of products it sold and supported.
The alliance between the two therefore relieves Samsung of a loss-making business in which it was not making headway, and delivers it a customer sure to be hungry for more of the NAND flash its factories produce. Seagate gets sufficient market share to send it back to the top of the storage industry plus a diversified supply chain for solid state memory and some influence over future product directions.
A wider issue is what recent consolidation means for enterprise storage users, as in recent times Fujitsu, Hitachi GST and now Samsung have all exited the magnetic disk market. The effect on disk prices and the pace of innovation is hard to predict, but it seems fair to assume that a market with fewer players is not likely to see vigorous competition. All disk vendors have also struck trouble scaling drives. Technologies like Patterned Media and Heat Assisted Magnetic Recording have been posited as scaling magnetic disks to 10TB and beyond, but vendors have consistently pushed back delivery dates for such drives.
In the meantime, Seagate has pushed drives to 3TB, but has done so by stacking more platters inside disk housings rather than with breakthroughs in disk media.
Enterprise customers, we expect, won’t notice a difference for a while: Samsung was not a big player. Indeed, when SearchStorage ANZ used our Twitter feed to ask readers if they felt the WD/Hitachi GST transaction would impact their purchasing decisions we were offered a very muted response.
But with almost every user facing significant demands for increased storage capacity, and vendors gearing up for the challenge of “big data”, we anticipate slightly more concern about future innovation and supply after this latest transaction.
Are we being too imaginative? Send us email to firstname.lastname@example.org and let us know what you think this transaction heralds.