Samsung Searches Buyer for Its HDD Business

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The information has to be officially confirmed by Samsung but the WSJ is a reliable source and many companies formerly gave intentionally a "scoop" to this financial publication ... to find a buyer.

Nevertheless, it's not a surprise. There was something like hundred of HDD makers at a time. If the Samsung's deal happens and after the completion of the recent acquisition of Hitachi GST by WD for $4.3 billion, there will be only three: WD, Seagate and Toshiba, all of them in notebook, desktop and enterprise drives - Samsung is in 2.5-inch and 3.5-inch form factor SATA devices only. Toshiba, even after its acquisition of Fujitsu's HDD business, remains a small actor behind the two U.S. giants and could be the next one to quit the market. Disk drive is going to be a monopoly of American companies in a country where it was invented (by IBM).

The smallest HDD player
Samsung always was a relatively small player with currently a market share being no more than 11% of all the shipped HDDs in the world. It's about the same level for Toshiba, Seagate representing around 29% and WD+HGST more than 60%.

We recently met Franck Philippe, senior sales manager of storage products at Samsung in France, who unfortunately will have a good chance to lose his job. He told us his company sold in 2010 a total of 80 million HDDs with 80% of them manufactured in Gumi, Korea and 20% near Shenzhen, China. He adds that 65% of them are 2.5-inch drives and the remaining in 3.5-inch form factor. Main OEMs are Dell and HP. He also told us that his firm will progressively stopped its 1.8-inch line currently culminating at 250GB. Samsung already offers 2.5-inch 12.5mm-high units at 1TB and 333GB per platter and was considering a next-generation at 667GB per disk. And what about 3.5-inch 3TB HDD where the company is not yet involved like Seagate and WD? "We postponed this project and maybe we will have one in 4Q11 with four platters," he answered.

Never profitable?
Samsung never revealed any financial figures on its HDD business. But it's possible that it never was profitable as the firm doesn't manufacture the most expansive ingredients in a disk drive, heads and platters, and is assembling most of its units in Korea, a country with higher salaries than in Malaysia, Thailand and China where are located most of HDD plants. The Korean company pursues this activity because it always liked to build all of its IT components and HDDs were needed for its computers: PC, notebooks and sub-notebooks. Its captive market was huge for disk drives and the company also sold some of them to OEMs and the channel . Another reason for Samsung to sell this activity: the firm is one of the biggest makers of flash chips and SSDs, and then probably thinks - as many analysts - that the future of storage is more in flash than in mechanical rotating device. For Samsung, HDD is clearly not anymore a strategic business.

Which buyer?
We see only three possibilities: competitors Seagate, Toshiba and WD. Toshiba is like Samsung, a small actor deeply involved in flash. WD has no more enough money after its HGST acquisition. Seagate is largely the favorite.
 
At which price?
If you consider that HGST is being acquired for $4.3 billion and was representing 18% of the market, the value of Samsung HDD, with 11% share, could be $2.6 billion. But Seagate will not pay such a huge amount. Why? As we wrote, this business is not profitable, not integrated as basic components are bought from outside sources, and using employees with relatively high salaries. The buyer will have to move Samsung's Korean biggest plant in another country. More than that, Seagate cannot be interested by Samsung's R&D in this field. It's own one is sufficient for comparable or better technology.

The WSJ wrote that: "Samsung is looking to sell the unit for $1.5 billion, but it may consider a deal under $1 billion." Samsung has better to consider $1 billion, and maybe less than that because we see Seagate has the only one company really interested by the deal and we don't see another one to overbid apart a price so low than Toshiba and WD could consider it, just to gain some market shares for a bargain.WD may try to offer a price just to oblige its "good friend" Seagate to pay a little more.