Samsung's hard-drive unit sale could lead to massive market consolidation

If Samsung sold its hard drive unit to Seagate, it would put 90 percent of the market share for hard drive sales in the hands of two companies -- Seagate and Western Digital.

Samsung Electronics is quietly trying find a buyer for its hard-drive division and the most likely suitor is Seagate, according to a report in the Wall Street Journal.

If such a deal were to proceed, it would put 90 percent of the market share for hard drive sales in the hands of two companies -- Seagate and Western Digital.

Seagate, the second-largest manufacturer of hard-disc drives behind Western Digital, holds about 30 percent of global hard-drive sales, according to iSuppli. Acquiring Samsung's hard-drive business would add another 10 percent and put it in a better position against Western Digital, which will hold about 50 percent market share when it wraps up its $4.3 billion acquisition of Hitacchi's hard-drive business.

Both hard-drive manufacturers are pursuing an acquisition strategy as perhaps their only path to grow right now, said a March report from iSuppli analyst Fang Zhang.

HDD shipments in the first quarter of 2011 are anticipated to reach 160.9 million units, down 3.9 percent from 167.5 million in the fourth quarter of 2010. Shipments are being impacted by the rising sales of tablets, which don't use HDDs and are cutting into the shipments of mobile PCs, a major market for hard drives. Other factors are affecting HDD sales as well, such as declining PC shipments in all major markets due to the growing use of cloud storage. Amid weaker industry conditions, organic sales growth is more difficult to achieve, prompting HDD suppliers to engage in acquisitions to gain market share.

For it's part, Samsung was finding it hard to compete in against larger rivals and would find it hard yet against a consolidating market. The Seoul, Korea-based company would like to sell the unit for about $1.5 billion, but would accept a $1 billion offer, an anonymous source told the newspaper. The WSJ's source said Samsung would like to use the cash from a sale of the hard-drive business to double-down on a market where it holds better prospects. Samsung is the world's top maker of memory chips and flat screen displays.

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