With No Buyers, What's Next for Seagate?

Arthur Cole

Two weeks after it appeared that someone was going to walk away with storage manufacturer Seagate under its arm, it now seems the company is off the block and is, in fact, pushing an aggressive lineup of new systems this spring.

According to which rumor circulating around Wall Street late last month you believe, Seagate was either going to be bought out by private equity firm, Toshiba, or possibly by Western Digital, the latter creating the top hard disk drive manufacturer in the world. To date, none of these alleged deals have come to fruition, leaving Seagate to stand alone as the enterprise storage industry continues the transition toward SSD technology.

But that could make for some very tough sledding for Seagate considering it has so far only tepidly embraced the SSD market, and, even then, long after most other drive manufacturers have seen the light. Even today, the company has only the Pulsar SSD and the Momentus XT hybrid drive to tap into enterprise SSD fever, preferring instead to highlight large capacity hard disk technology like the new Constellation drive. True, the device packs up to 1 TB in a 2.5-inch form factor supplemented by 6 Gbps throughput, but this is tempered by two facts: One, Western Digital broke the 1 TB barrier more than a year ago with the Scorpio Blue laptop drive; and two, a development strategy that is overly heavy on HDDs, while potentially very profitable, keeps the company on the sidelines as SSDs reach ever-deeper into enterprise storage environments.

Clearly, though, Seagate has a plan. Barring a suitable buyout offer, the company is looking to rework existing debt and raise some new cash to the tune of $1.1 billion. But how much of this will go toward R&D and how much will go toward its recent stock buy-back plan, estimated to be worth about $2 billion, is unclear. In today's financial climate, increasing the debt load is a risky proposition, particularly if the company is intent on championing a technology that is surrendering market share to advanced Flash systems.

Of course, with a rising economy there is every likelihood that higher profits will lift the enterprise storage industry across the board, which would provide a little breathing room for either a stronger push into SSDs or a more generous buy-out offer.

There will always be a place for HDDs in the enterprise, but the fact is, the HDD is a percentage of overall enterprise storage that is shrinking while SSD is rising. The question Seagate needs to ask itself is whether it intends to limit itself to a declining market segment or stake out a stronger claim for the expanding one.

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