Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

Summary: Seagate has acquired Samsung Electronics' hard disk drive (HDD) operations for $1.37 billion in a move that boils the market down to two players. Seagate and Western Digital now control the HDD market.

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Seagate has acquired Samsung Electronics' hard disk drive (HDD) operations for $1.37 billion in a move that boils the market down to two players. Seagate and Western Digital now control 90 percent of the HDD market with Toshiba a distant third. Under the terms of the deal, Samsung will lump its HDD unit into Seagate in exchange for a cash and stock deal worth $1.375 billion. Samsung will own nearly 10 percent of Seagate and the two companies will cross-license patents. Samsung will also provide NAND flash memory for Seagate's solid-state drives. In addition, Seagate will supply drives for Samsung's PCs.

The two companies will also co-develop enterprise storage gear. Seagate and Samsung have had a joint development pact since August.

In many respects, the Seagate-Samsung deal rhymes with Western Digital's acquisition of Hitachi's storage unit. You have two U.S. companies teaming up with an Asian partner to gain more scale, boost margins and focus more on the enterprise. Related: Samsung's hard-drive unit sale could lead to massive market consolidation

Barclays Capital Ben Reitzes said in a research note that the Seagate acquisition of Samsung's HDD unit made sense to counter Western Digital. With Samsung, Seagate will have market share of about 40 percent in the market. Combine that share with Western Digital and two companies control about 90 percent of the market. Robin Harris notes that there are only three HDD companies left. I'd argue No. 3 is so small that'll it'll have to merge to play the game.

Reitzes wrote:

We believe that any acquisition would be a net positive for the HDD industry and its remaining competitors (Western Digital and Toshiba). Due to increased consolidation and capacity rationalization, industry participants should benefit long-term from improved pricing. In recent months, pricing has continued to firm within the industry and future consolidation would likely help support pricing and margins.

For Seagate, the Samsung deal will be "meaningfully accretive" to earnings and cash flow in the first year after the deal closes.

Steve Luczo, Seagate CEO, said:

With these agreements, we expect to achieve greater scale and deliver a broader range of innovative storage products and solutions to our customers, while facilitating our long-term relationship with Samsung.

Other key points about the deal:

  • Samsung gets a board seat;
  • Seagate will issue 45.2 million shares for Samsung;
  • There are no financing contingencies.

Separately, Seagate reported its fiscal third quarter earnings. The company delivered first quarter earnings of $93 million, or 21 cents a share, on revenue of $2.7 billion. Non-GAAP earnings were 25 cents a share. Wall Street was expecting earnings of 27 cents a share.

Topics: Samsung, Banking, Hardware

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73 comments
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  • That didn't take long.

    It was bound to happen after WD acquired Hitachi.
    Bates_
    • To be correct, Seagate did not acquire, but merged Samsung's HDD unit ...

      @Bates_: ... since Samsung will have Seagate's shares and a director seat.
      DDERSSS
  • what's up with Seagate manufacturing?

    recently purchased a ST3500418 AS 500 gb sata 3 drive from newegg. Arrived DOA, okay it's a glitch. Replacement drive died after 2 days. Not good news. Have many seagate drives that have lasted 5 years or more. Seems like heads are getting stuck halfway through the travel. Bad manufacturing?? Seagate may be having some growing pains.
    sparkle farkle
    • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

      @sparkle farkle Seagate used to be a minaret for reliability. However, as soon as they took over Maxtor, the quality went down hill. They've had serious issues with their firmware and cheap quality heads on their 500GB+ drives. WD seems to be doing much better now quality and performance wise.
      tamouh2
      • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

        @tamouh2

        That is only on the consumer market the server side tells a different story. Lets just say, WD needs to get their SAS in gear.
        mgaul
      • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

        @tamouh2 I'm not so sure about even WD. I was just checking out a sale on newegg for those new 1TB blue running on sata III interface and the reviews are horrible for the most part....startlingly similar to what seems to have been coming out of Seagate lately. So what happens to the industry if none of the big players can put out a decent product?
        ibatex
      • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

        @tamouh2 Yeah... The consumer side blows as mgaul said... I generally buy the SATA drives intended to be for work stations and haven't had any problems.
        snoop0x7b
    • In a word: Maxtor

      @sparkle farkle: Quality on some of Seagate's product lines seemed to drop when they bought up Maxtor a while back. Basically, some of today's Seagate drives are being made at Maxtor's crappy factories, and may even incorporate chunks of crappy Maxtor technology for all I know. Sad development for a once great company....

      But now that they've bought Samsung, who had overtaken them as makers of the all-round best drives on the planet, maybe they'll flush out whatever bugs they acquired from Maxtor and regain the crown.
      p.bristow@...
      • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

        @p.bristow@... samsung made good drives? when? I have replaced almost as many samsung drives as I have maxtors.. Samsung drives are iffy at best, and the fact that Seagate isnt planning on shutting down the crummy factories worries me even more... I think I may stick with WD for now, and for price, I will take a WD over a Seagate any day, unless you want to give me the seagate free... as for samsung and maxtor, I would rather take a poke in the eye with a sharp stick...
        nickdangerthirdi@...
    • Re: What's up with Seagate manufacturing?

      Sounds to me like Seagate's current firmware architecture may be end-of-life, perhaps they're looking to revitalize it with Samsung's software.

      For something that looks like a brick, hard drive software is hideously complex, having to work to microscopically small tolerances on hardware where every fraction of a penny is begrudged.

      As more and more features are added to maintain a competitive edge, the architecture becomes gummed up with blue-wire kludges that make it more difficult to add new features and extend required testing time - validating a software change can take a full week of 24 hour testing.

      When a change is rushed through because of the enormous expense of a stopped production line, you get the sort of fiascos suffered by Seagate a couple of years ago when a software upgrade killed drives in thousands of consumers' PCs.
      geekbrit@...
      • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

        @geekbrit@... Having written Disk servo code and having been reliability engineering manager (world wide) at a disk drive company, I can tell you that software for these isn't *that* hard to do (oh, it's hard, but not the limiting factor). Analog is the beast and mechanical engineering/supply engineering issues are the things that kill you.
        wibrewer
    • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

      @sparkle farkle Yeah I feel like Maxtor was contagious when they acquired them.
      snoop0x7b
    • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

      @sparkle farkle

      Seagate's desktop drive QC has to be the worst. Seagate put out decent drives some 8-10 or so years ago, but I wouldn't purchase one today.
      StoneSatellite
      • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

        @StoneSatellite I agree, I used to be a uge fan of Seagate drives, but after having the last two I bought's heads getting stuck on me, it would take a lot to make me reconsider buying seagate again.
        sadieza
    • Other Explanation

      @sparkle farkle It is possible that somewhere between the manufacturers door and your door, the package got dropped somewhere. Is another explanation.
      bigpicture
  • And then there were two!

    NT
    zmud
    • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

      @zmud
      Well if the comments above are anything to go by, Toshiba may have an opportunity to expand market share if it can sell quality and reliability.
      disasterboy.info
  • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

    It's about time, I hate Seagate hard drives, and so do many of my IT friends. So taking on the samsung product line will be like hiding Seagate products under the Samsung name.<br>I had 3 Seagate 500 GB drives that failed, one by one, each had a 5 year warranty. Each replacement drive failed, one by one, I eventually gave up getting them fixed and swore I would never buy another Seagte hardrive. Now I can add Samsung to that list.
    massimj@...
  • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

    Isn't the pioint of hard drives mute? Won't they all be solid state soon?
    Daveyk01
    • RE: Seagate lands Samsung's hard drive unit for $1.37 billion: It's duopoly time

      SSDs will have to come down to about $50-100 apiece before that happens. About what you pay for HDDs now. <br><br>I paid about $75.00 apiece for a couple of 320GB WD drives up at MicroCenter a couple of weeks ago. The retail price on HDDs have come down quite a bit the last couple of years.
      LTV10