Samsung sells disk drive unit to Seagate for $1.4bn

Seagate has agreed to pay $1.4bn to take over Samsung's hard-disk drive division, in a deal that will give the South Korean company a say in Seagate's business and a guaranteed outlet for its Nand flash.

Seagate has agreed to pay $1.4bn to take over Samsung's hard-disk drive division. Photo credit: Seagate

Under the deal, Samsung, the second-largest semiconductor maker by revenue, will merge its hard-disk drive (HDD) wing with that of Seagate, the two companies announced on Tuesday. In addition, Samsung will provide Seagate with Nand flash memory for use in the company's solid-state drives (SSDs), hybrid drives and other products. Nand flash is the main component of SSDs.

In exchange, Samsung will gain a seat on Seagate's board of directors, along with $687.5m (£421.7m) in cash and $687.5m in stock, which will give it ownership of roughly 9.6 percent of the Scotts Valley, California-based storage specialist.

"The transactions and agreements significantly expand Seagate's customer access in China and southeast Asia," the companies said in a joint statement.

"In addition, the mutual supply agreements enable Seagate to secure an important source of leading-edge Nand flash supply as the company expands its SSD and solid-state hybrid product offerings, and position Seagate to be a more significant supplier of disk drives to Samsung," they added.

As part of the agreement, Seagate will supply disk drives for Samsung's PCs, notebooks and other consumer electronic products.

HDD industry consolidation

The deal is another sign of consolidation in the HDD industry, following Western Digital's acquisition in March of Hitachi Global Storage Technologies, in part for its HDD business. Among other things, Seagate provides HDDs for the enterprise, such as its recently released 3TB Barracuda product.

Samsung and Seagate plan on "extending and enhancing" their cross-licence patent agreements as a component of the deal, while also working together on developing new storage products.

Additionally, they hope to jointly break into new markets such as mobile computing, cloud computing and solid-state storage, according to the statement. In August, the two companies announced a collaboration on developing controller technologies for SSDs.

Samsung is getting 45.2 million shares in Seagate, which equates to $15.21 per share. Seagate closed at $17.84 on Monday on the Nasdaq, having risen from $15.80 a week earlier before rumours of the deal emerged.

The agreement is subject to customary closing conditions and review by US and international regulators. The monetary transactions are anticipated to close by the end of 2011.

Once this buy and Western Digital's acquisition of Hitachi GST goes through, the two vendors stand to control over 50 percent of the HDD market by units shipped, according to Valdis Filks, a research director for Gartner.

"Seagate and Western Digital have understood they need to be bigger players — they need to believe that they can control the market," he said. "It's economies of scale; they can offer larger volumes at better prices and buy more materials and components and have more leverage. They're in enterprise systems, SSDs will not takeover HDDs as the storage of choice [for the enterprise] for at least a decade".