LONDON – Hard disk drive maker Seagate Technology plc is going to take over the HDD business of Samsung Electronics Co. Ltd. paying $1.375 billion in 50:50 cash and stock mix.
This will result in Samsung having about a 9.6 percent ownership stake in Seagate and Samsung will get to nominate one of its executives to join the Seagate board of directors.
Under the terms of the proposed deal, expected to close by the end of 2011, Samsung will provide NAND flash memory to Seagate for use in solid-state drives (SSDs) and hybrid drives while Seagate will provide disk drives to Samsung for use in personal computers, notebooks and consumer electronics.
At the same time the two companies have agreed to extend and enhance an existing patent cross-license agreement.
In addition the strategic nature of the alliance with Samsung means that Seagate expects to strengthen its relationship with SAE Magnetics (H.K.) Ltd., a subsidiary of TDK Corp.
"We are pleased to strengthen our strategic relationship with Samsung in a way that better aligns both companies around technologies and products," said Steve Luczo, Seagate chairman, president and CEO. "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."
The deal is expected to expand Seagate's customer access in China and Southeast Asia. Upon closing, Samsung will receive Seagate ordinary shares valued at $687.5 million, equivalent to 45.2 million shares, or approximately 9.6 percent ownership of Seagate, which is based on Seagate's 30-day volume weighted average stock price prior to signing, plus $687.5 million in cash.
@rick.merritt: is this more of business realignment from Samsung, trying to play safe? Seems to me that they want to leverage their expertise with SSD's and hybrid drives with a big name vendor like Seagate for some guaranteed revenue. On the flipside, Seagate may be also diversifying their SSD vendors/sources. Interesting times...
Actually the profit margins in the HDD business are going to grow. You no longer have 5 players who potentially may decide to drop prices, you only have 3. Toshiba may end up growing market share due to the consolidation. SSD is still years away from being cost competitive. Less than 1% of consumers are willing to pay a $200 upgrade to SSD on a $500 laptop. And everyone I know who buys a SSD ends up having to buy a HDD due to capacity reasons. And your backup drive is going to be a HDD. All the HDD players have SSD solutions. SSD will eventually undergo consolidation since there are many players involved. A SSD is like a cell phone, it lasts for 2-3 years and then become unreliable. HDD generally only become unreliable once you exceed 80% of capacity.
Hard drives seem to me to be a technology that is fading into the sunset as far as real innovation is concerned. The handwriting seems to be on the wall as far as the future being SSD. The current wave of consolidation only emphasizes this point.
The last thing I hoped to hear regarding Samsung HDD business was this. Lack of competition aint gonna help innovation. Moreover I am not sure, how this acquisition benefits Seagate for real.
"With these agreements, we expect to achieve greater scale" IMO they have all the scale they need as if now, further increase wont benefit much for anyone. Hope it wont end up like their Maxtor acquisition!
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