Seagate and Samsung merge disk business

Seagate and Samsung are merging their disk businesses. Will we get Seasung or Samgate? Is there any advantage for us customers?

Seagate lead the magnetic disk market and follow other manufacturers in the SSD, Solid State Disk, market. Samsung are followers in the magnetic disk market and are leading producers of the flash memory chips used in SSDs. A merge makes sense for both companies with the biggest value to Seagate, the reason Seagate will pay over a billion dollars to Samsung and give away part of their ownership.

Seagate lead the magnetic disk market with their recent announcement of the highest density disk, their initial entry into the hybrid disk market, and many of the major announcements over the last 30 years of the disk market. Samsung always follow on behind with slightly smaller and slightly slower disks that are cheaper, but not as cheap as Hitachi, and quiet, quieter than Hitachi. Only a small number of customers will pay the few extra dollars to get a quiet disk. Many customers are attracted by the massive product range from Western Digital. Samsung have to compete on price in a market where margins are small on medium size and medium speed disks.

Seagate acquired Maxtor some years ago and should be ready to acquire again. The Maxtor brand died because of reliability problems and probably gave Seagate little advantage. Buying the magnetic disk business from Samsung makes more sense. There is one major brand to many in the current market and taking Samsung off the market will lift prices a little. Hitachi will supply the discount shops. Western Digital and Seagate will appear to compete in the middle level mass market but will not have to work as hard because because shops need two brands. Seagate gains a factory from Samsung. Both Seagate and Samsung disks are quiet. The Samsung product range is a better fit for Seagate than the other brands. Seagate and Samsung already share technology.

Will the merge of the two magnetic disk businesses benefit us customers? There will be a slight increase in their margins but the price we pay will not increase because, overall, prices are falling faster than the merge will push prices up. What we should see is a slow down of the rate at which prices drop. We should see a more consistent range of disks from Seagate down into the lower price/speed/capacity range where Samsung lives. Hitachi will still keep prices down for basic disks.

Seagate gives Samsung a chunk of money, shares, and a seat on the Seagate board. The part ownership of Seagate will stop Samsung competing with Seagate. The one area where Samsung can really compete is on SSDs. Samsung will stop selling SSDs. The big question is what Samsung will do with their flash memory chips. Samsung supply many SSD manufacturers. Will Samsung push up chip prices for the companies competing against Seagate? Unlikely. There are too many suppliers of flash memory chips and the real competition is in the SSD controller chip market, not the flash memory chips. Samsung is a good low cost mass manufacturer of flash memory chips. Samsung occasionally leads in capacity per chip and gets a better profit margin on those chips for a short time. Samsung is a leader in volume manufacturing and gets an increased profit margin when supply of a specific chip is limited. Samsung are not in a position to control prices across the bulk of the market because there are plenty of other suppliers.

Seagate will be a winner in the SSD area with Samsung guaranteeing a great supply of big cheap fast flash memory chips. Seagate may have an advantage in the large capacity SSD area by getting the first supply of larger chips from Samsung.

Seagate will still have to buy SSD controller chips and that will be a problem for Seagate. Seagate makes a lot of profit in the performance area. SSDs are the way of the future for performance. The controller chip is critical. Sandforce currently have the best controller chips. If Seagate want to take control of the performance SSD market, they have to buy Sandforce. Some of the executives and board members at Sandforce where at Maxtor when Maxtor merged into Seagate. Will they sell to Seagate?

Intel, Sandforce, and Indilinx are the main SSD controller chip designers with a performance lead. OCZ purchased Indilinx and continues to use Sandforce for premium speed SSDs. Seagate should buy Sandforce now while the SSD market is still flexible enough to give Seagate an edge. The alternative is to buy OCZ and instantly gain better SSDs plus ownership of controller chips.

Seagate sell a hybrid disk where a small amount of flash memory storage is added to a regular magnetic disk, giving you the speed of SSD plus backup to magnetic disk. Seagate benefit from Samsung supplying large capacity flash memory chips. The SSD controller chip function is not as important in hybrid disks. The critical part is the integration of the SSD component with the rest of the disk. Samsung should have the expertise to build the best integrated controllers, even if they are not the leaders in SSD speed.

If Seagate and Samsung merge the best features of both brands, everyone will benefit from better magnetic disk products and better hybrid disks. Seagate still needs to work on performance SSDs.