Seagate buys LaCie: good for us?

Summary:Seagate announced this morning that they are purchasing LaCie, the French consumer storage company, for $186 million. Should we worry?

It's the money For decades hard drive companies have moaned about their low margins while they've done all the heavy lifting to make storage cheaper. Seagate has spasmodically attempted to diversify into higher margin businesses - their $100+ million investment in Xiotech was particularly mystifying - but with little success.

The basic problem is that drive companies can't be seen to be in competition with their most valuable customers, the HPs, Dells and EMCs of the world. The high end storage products that companies buy typically carry gross margins in excess of 60%, while drives alone are in the 10-15% range.

And much of those drive margins have come from the high-end drives - 10 and 15k SAS and Fibre Channel enterprise drives - whose market is rapidly shifting to solid state drives. Not good.

Consumers to the rescue Lately the drive vendors have found a way: focus on consumer storage. The Seagate and Western Digital consumer/SOHO storage businesses have been growing fast with much fatter margins.

This is good for Seagate and WD. But what about us consumers?

The Storage Bits take Hard drives are a mature industry with only 3 manufacturers still in the game: Seagate, WD and - a distant 3rd - Toshiba. Forget about the cutthroat price competition that regularly delivered super-cheap raw drives to hobbyists.

Instead we'll see steadier price-per-bit declines at about 40% annually for the next several years. Less than fabulous, but I can live with that.

But there's a larger problem. In order to keep driving down the cost of rotating storage, the remaining vendors need to invest in expensive new tech (see Engineering the 10 TB notebook drive): HAMR (heat assisted magnetic recording) and patterned media.

Each of these will require billions in investment over the next decade to bring to production, assuming they succeed. And for that the drive vendors need to be making many more billions.

Thus the move into consumer storage is not only smart business for drive vendors, but it also promises to keep disks moving along the price/performance curve we've come to expect.

For all the benefits of flash SSDs, there is no way they can replace disks as a bulk storage medium. We need disks to keep improving, and drive vendors need profits to pay for that.

But even better, Seagate is putting LaCie's founder in charge of their consumer storage business. Here's hoping that LaCie's focus on design excellence and product quality carries over into the rest of Seagate's consumer storage.

Comments welcome, of course.

Topics: CXO, Hardware, Storage

About

Harris has been working with computers for over 35 years and selling and marketing data storage for over 30 in companies large and small. He introduced a couple of multi-billion dollar storage products (DLT, the first Fibre Channel array) to market, as well as a many smaller ones. Earlier he spent 10 years marketing servers and networks.... Full Bio

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