Analysts: Industry Impacts of Western Digital Acquisition of Hitachi Storage

March 8, 2011

On Monday March 7 Western Digital (WD) announced that the company had reached an agreement to purchase Hitachi Global Storage Technologies (HGST) for $4.3 billion in cash and common stock. The deal has already been approved by both companies’ boards and is expected to close in the third quarter assuming regulatory approval.

HGST’s parent Hitachi will retain a 10% stake in the combined company and HGST’s current CEO, Steve Milligan, will be president of the new business reporting to WD president and CEO John Coyne. The merger will impact the HDD industry including component and equipment suppliers and change the landscape for enterprise SSDs.

Biggest in HDDs

From a unit shipment perspective WD and HGST are the largest and third largest manufacturers of hard disk drives (HDDs). Today Seagate remains the revenue leader, thanks to the company’s dominance of the enterprise SSD market. The pending merger will push WD’s revenues ahead of Seagate’s.

WD is already the unit shipment leader, having surpassed Seagate’s unit shipments over a year ago. Combined unit shipments for WD and HGST account for nearly 48% of the world HDD market.

Hitachi GST was formed by the merger of IBM and Hitachi’s HDD units in 2003. After many years of losses HGST turned profitable for most of the last two years. Although the division is profitable, Hitachi was rumored to have been looking to divest itself of its HDD unit for several years. In 2010 and even in 2009 rumors reported that Hitachi was shopping for a buyer for the division with WD mentioned as one of the suitors. WD was also rumored to have been interested in Fujitsu’s HDD business before that company was acquired by Toshiba.

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My 6 Most Useful High-Tech Hardware In 2009

December 31, 2009

Unlike most, trying to be smart – or dumb – about predicting next year’s trends, I wanted to reflect back on the most useful high-tech hardware in my life this year.

  1. First and foremost is my laptop. In this case, it’s an old Apple Macbook (2 GHz Intel Core Duo, 2 GB Ram) that I upgraded with a 500 GB hard disk drive from Western Digital. It still works fine for editing videos, photos and stories. There was a crack on the Mac’s case (next to the screen) and the Mac repair shop changed it (it was a known defect) and installed a brand new keyboard… all for free (I think it’s still under warranty)!
  2. A Logitech Performance MX mouse that works virtually everywhere, even on glass, thanks to its Darkfield technology. The only downside with this mouse was that they is no trap inside it to store the tiny wireless receiver when I need to free up one of the USB port. I’m always afraid to loose it as it’s so minuscule. Also I must always remember to bring the USB cable that ships with the mouse as it’s needed to recharge it;
  3. Livescribe‘s Pulse Smartpen was a lifesaver for me. It records everything I write and synch it with the audio recording. I never miss a word, during an interview or even a long-form presentation. Even more critical for me, I’m able to go back to a particular speech/interview by just tapping on my notes associated to it. It makes my reporting so much more accurate and faster. I couldn’t do without it anymore.
  4. iPod nano, 5th generation with the audio and video recording. I use it to record short interviews, instead of using the bigger video camcorder; as well as audio conversations/presentations when I don’t have my Smartpen handy. I wish the nano had an external microphone jack like the Kodak Zi8 Pocket Video camera which might replace in 2010, both the iPod nano and my hard disk based camcorder. I would have to check the battery life though;
  5. Google G1 smartphone. If you heard me complaining about my phone, you might be surprised to see it mentioned here. But despite its dismal keyboard, which I somehow got used to!, the G1 got even more useful when Google released its Navigation app. With Google Map Navigation I don’t need a seperate GPS system anymore. The G1 is now my one stop shop for voice, watch/alarm, email, Web browsing, calendar, twitter, occasional photo/video recording and lately, navigation. I’m not using much of the Facebook app yet but that might change next year;
  6. Last but not least, the Roku Netflix player was the most important device in my home entertainment centre, just after the plasma TV but way more than the DVD/VHS player or the intermittently connected Mac mini. Hopefully, Roku will open its media player up (as well as the USB port) so it can play content off a USB key/drive and from more Internet video sources like Hulu. One can dream!

Voila, that’s it for me. Have a wonderful holiday and see you next year!

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Tech Price Watch: External 1.5TB Disk Drive For Under $100

November 13, 2009

Western Digital Element 1.5 TB Go External Drive for under $100After a couple weeks hiatus, hard disk drive prices are heading downwards again.

Fry’s is now offering Western Digital’s Element 1.5TB external USB drive for under $100. That’s about $66 per terabyte. A better deal than the already low $78 price tag for SimpleTech’s 1TB drive.

WD beats Seagate on low price

Our last check on the external 1.5TB drive category showed a Seagate disk for $125.

On the same page today, Fry’s is advertising Seagate’s 1.5TB internal drive for $100; still more expensive than Samsung’s 1.5TB drive that sold for $80 in early October!

For next week’s Black Friday, I expect most of the drive makers to align their price to Western Digital’s and perhaps to go as low as $100 for an external 2TB drive or a whopping $50 a terabyte. Currently, an external 2TB drive costs about $170.

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Tech Price Watch: 1TB Disk Drives Under $60

October 12, 2009
Western Digital is the price leader for 1TB disk drives!

Western Digital is the price leader for 1TB disk drives!

If you think of it, that’s just 6 cents per gigabyte -  5 years ago it was almost 20 times that!

With a 1TB bare-bone (internal) disk drive at less than $60 at Fry’s Electronics, Western Digital (WD) is the absolute low price leader… for this week! The same drive cost $20 more a couple weeks ago.

The other notable price decrease since last week is a 2TB serial ATA/300 now at $160 ($10 less than Seagate) by Hitachi.

I also was impressed by the low price of the Kingston 64GB Solid-State Drive (SSD) that now only costs $100. I would recommend one in a heart beat: I revived my old MacBook with a 80GB Kingston SSD and is now doing most of the video post-production (importing, editing and exporting)!

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Toshiba Scoops Up Fujitsu’s Hard Disk Drive Unit; Becomes Biggest Maker Of Laptop Drives

February 17, 2009
With Fujitsu's drive business acquisition, Toshiba will lead the market of small form factor hard disk drives

With Fujitsu's drive business acquisition, Toshiba will lead the small form factor hard disk drives market

When it announced last month its biggest operating losses since it started reporting earnings in 1949, Toshiba said it was still betting on a rebound.

Today, in acquiring Fujitsu‘s money loosing hard disk drive business – under the nose of competitor Western Digital – Toshiba is putting its money where its mouth is.

The Japanese makers didn’t divulge the amount of the transaction but point out that the combine operations will propel Toshiba as the number one maker of 2.5-inch hard-disk drives with more than a 30% market share, surpassing Hitachi and Western Digital, which each a 22% market share.

Will Toshiba sell Fujitsu’s enterprise drives to Hitachi?

However, Toshiba will now have to decide if it keeps Fujitsu’s line of enterprise disk drives and enter this new market, or sell it to Hitachi, and stick on making drives for mobile and consumer electronics devices.

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Seagate Reports Record Losses, Forecasts Continued Sales Drop

January 21, 2009

The world’s largest hard-drive maker reports for its fiscal second quarter today a net loss of $496 million, on revenues of $2.27 billion, compared to a gain of $403 million and revenues of $3.42 billion last year.

This is Seagate’s first quarterly loss since 2004. Looking ahead, Seagate expects fiscal third-quarter revenue of $1.6 billion to $2 billion.

Competitive price pressure will continue through 2009

Last quarter, gross margin fell to 14.2% from 26% due to competitive price pressures, both for its retail and OEM businesses. The company shipped 37 million hard-disk drives but is loosing market share to rival Western Digital in the faster-growing notebook segment.

Last week, Seagate appointed Chairman Stephen Luczo the top post, replacing CEO Bill Watkins and COO Dave Wickersham. Luczo was Seagate’s CEO from 1998 to 2004 and led the company move to go private and public again.

The Scotts Valley, Calif-company also said it would cut about 2,950 jobs, or about 6% of its work force, and salaries of its top managers by as much as 25%.

Seagate’s debt is now junk

Seagate’s current debt load is at a whopping $2.4 billion at the end of the last quarter. Long-term debt maturities over the next 18 months consist primarily of $300 million in October of 2009 and $135 million in April of 2010.

The company’s credit ratings is now in junk territory downgraded by all three major rating agencies making it much painful to borrow more capital.

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Western Digital Lowers Outlook; Cuts Jobs, Factories

December 17, 2008

The hard disk drive makers are hitting the brakes.

Today’s warning from Western Digital sure feels like a copy-cat announcement from Seagate last week: job cuts, reduced revenue outlook, holiday shutdown.

Revenues missed by $300 million

The Lake Forrest, Calif. company revised its revenue outlook for its second fiscal quarter – ending December 26 – to be in the range of $1.7 billion to $1.8 billion, versus its October estimate of $2.025 billion to $2.150 billion. A $300 million shortfall.

In addition, Western Digital will axe 2,500 employees or five percent of its total workforce, cut capital spending by 34 percent – to $500 million – in 2009, shut down plants and temporarily halt the majority of its manufacturing operations for 2 weeks, starting next week.

The second largest hard drive maker expects the demand to remain weak well into the middle of the 2009; in line with Seagate CEO Bill Watkins’ own estimates who sees however demand picking up next September.

Early January, Seagate plans to announce its own set of cuts.

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Seagate Invests Nearly $100 Million A Year In Flash Technologies

December 11, 2008

Early next year, Seagate is preparing a major push in Flash-based drives – also known as SSDs – and home entertainment devices.

The Scotts Valley, Calif., company said it is investing between $80 to $90 million a year in Flash technologies that will first be used in enterprise storage products.

“The enterprise is a good place to put SSDs where they are able to take advantage of the better performance. But that’s going to be only 5% to 10% of our enterprise market,” confided Seagate CEO Bill Watkins during a meeting with financial analysts this week.

Flash drives will be slow to take off

However, the world’s largest drive maker does not see Flash drives to make any real inroads in the more “conventional” notebook and desktop businesses, where PC makers want drive with capacities from 160GB to 300 GB and growing.

“Today Flash drives can not match the $40 or 50$ that we ask for a 300GB drive,” added Watkins who criticized Samsung’s upcoming 64G-byte three-bit MLC SSD in the first half of 2009 for being less reliable and less performance than previous generations of SSDs.

Although Seagate sees a significant volume opportunity in the netbook category, which more often than not are shipping with an embedded hard disk drive and not a Flash drive, extreme low prices are the major factor for staying away from this sector.

Whereas hybrid drives, that combine a traditional magnetic drive with some Flash memory on board that increase significantly a machine’s boot up time, could well take off before Flash-only drives if only the technology was better supported by operating systems vendors like Microsoft or Apple.

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Seagate Cuts Revenue Outlook; Plans Large Restructuring In January After Mandatory Holiday Shutdown

December 11, 2008

Seagate warned yesterday that it now expects revenues for the current quarter to be in the range of $2.3 to $2.6 billion, which is about $500 million off previous projections, communicated just a little over a month ago.

The world’s largest disk drive maker also confirmed our earlier report that it is in a midst of a major restructuring analysis to slash production capacity and its workforce – rumored to be up to 20% – as well as impose a company-wide mandatory holiday shutdown.

“We can make money at $3 billion a quarter. We can even make money at $2 billion. But we can not make money If I think it’s $3 billion and it ends up only $2 billion,” admits Watkins.

In a meeting with financial analysts in San Francisco, Seagate CEO Bill Watkins said that sales were “decent” up until the second week of November when demand suddenly “pullback”; affecting sales in retail, enterprises and PC manufacturers or OEMs.

A deteriorating situation that quickly resulted in a price war among hard drive makers including Western Digital, Samsung, Fujitsu, Hitachi and Toshiba.

“We didn’t want to try to make this quarter. We decided we need to pull back, get pricing under control and focus on the long term opportunity,” adds Watkins.

Other comments from Seagate’s CEO on his views of the troubled disk drive market:

We made deals that were not making financial sense, that were screwing up the next quarter.

We have to be disciplined and walk away from bad deals.

Asia is the strongest market by far, the U.S. the weakest and Europe is in the middle but falling rapidly too.

Russia, Ukraine, Brazil and Korea (melt down) were the other geographical areas that were hit hard mainly because of the credit crunch

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Seagate Plans To Restructure In January; Can It Go Private Again?

December 9, 2008
Seagate CEO, Bill Watkins, is navigating in troubled waters

Seagate CEO, Bill Watkins, is navigating in troubled waters

Amid the hard disk drive glut, Seagate plans to announce a major restructuring early next year.

“We have to readjust our production capacity to meet the lower demand,” said Bill Watkins, Seagate CEO at a media dinner last night.

The hard disk drive market is finally consolidating

Seagate is obviously not alone in the hard drive industry having to readjust drastically its expectations. Yesterday, Fujitsu’s CFO revealed that the Japanese company money-losing hard drive business is now up for sale; with Western Digital and Lenovo potential buyers.

Watkins also pointed to the “absurd” valuation of companies in the storage sector that will undeniably spur mergers and acquisitions or even “take-private” deals.

Seagate market value is around $2.5 billion despite having $1.1 billion in cash and short term investments!

“For the first time since Seagate went public, I bought some shares!,” admitted Watkins who said he never sold any of his Seagate shares either.

Private equity firm Silver Lake Partners took Seagate private 8-years ago before letting it go public 2-years later. “The market is not ready for a debt-based buyout. But we’re looking at other alternatives,” speculated Watkins.

It would be only the second time in 10-years that Seagate will be a private company. Déjà vu anyone?

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