While we were all quietly waiting to see if last month's Western Digital (WD) and Hitachi deal (see this FT.com article) would go through, giving WD a good 50% of the market share for HDD, this week Seagate took up Samsung Electronics' offer to sell its HDD division (first announced by the WSJ here). The Seagate-Samsung deal has a price tag of US $1.375 billion, half cash and half in Seagate shares, leading to Samsung's ownership stake of 9.6% in Seagate and a board of directors position – that's part of the interesting bit (read the details and fine line impacts here from Reuters and here from ComputerWorld).
So, what do these deals mean for the market and semi industry?
Firstly, it means that if both deals go through, not only will we be in record level merger and acquisition (M&A) times (again), but most importantly that the HDD market will be whittled down to only three real players, WD, Seagate and Toshiba (who recently acquired Fujitsu's HDD unit in 2009, as discussed here by Reuters), although Toshiba is considered a 'niche player' in the market by some analysts, as discussed here and here.
Secondly, these deals and the (lack of a) competitive landscape in HDD, underscore a likely end-stage maturation of HDD technology (now more than 50 years old, see this EETimes Asia review) due to speed, power, performance, cloud computing moves, and space/size issues for today's most popular devices (see this NYT article). While still a competitive and profitable market, HDD R&D and related costs (such as for new HAMR technology, as discussed here by ComputerWorld), like CAPEX costs across the semiconductor industry, are rising and taking serious bites out of profitability. The result of these rising costs is a reduction in the number of businesses in any given market sector. One positive note is that with the reduction of the HDD market to three real competitors, and given each of their business and product strategies, it is likely that an acceleration in the installation of hybrid and/or SSDs in CE and especially the PC sector, will occur. (See our recent MarketWatch Quarterly review of the HDD-SSD market here.)
The Seagate-Samsung deal is particularly interesting because of the business and technology share that is part and parcel of the deal. In this M&A, according to many, but well summarized by ComputerWorld, Samsung and Seagate will interact very closely, each one supporting the other's market dominance. Seagate will supply the disk drives for Samsung's CE product lines (PC notably included), while Samsung will (continue to) supply Seagate with the NAND flash chips for Seagate's SSDs. With this close relationship there is not only the product market sharing but also a regional customer access opportunity, plus the ability to speed development cycles and new product lines due to the intimate M&A relationship being penned. More specifically, business analysts expect the deal to result in a quicker emergence of "enterprise-class SSDs and consumer-class hybrid drives," as cited here in a thorough review of the deal by ComputerWorld .
Finally, there is always the lingering question of with fewer competitors (namely three now), what will happen to not only pricing, but supply? While there are no valid clues yet to answer this question, it is a serious business issue and warrants following, as we will continue to do here at MarketWatch.