Rumours were rife recently of a Seagate buyout of OCZ - nothing happened. But are Seagate even looking in the right places when it comes to SSD?
The HDD makers are flying high these days, primarily as a result of industry consolidation and the supply constraints following the Thailand floods last October.
The cloud building phenomenon continues globally and here there is nothing to threaten HDD as the choice for primary storage.
PC RIP
However the story is very different when we look at the PC. There will be approx 350 million PC's built this year (depending on who's numbers you follow) the same number built in 2010 and 2011. If you believe the recent pronouncements from IDC the PC will see 7% CAGR from 2013~2016. But all industry analysts have, for whatever reason, been badly over-estimating PC sales in recent years. Personally I believe that PC growth is already over & the value of any arguments against are an exercise in wasting time.
This is a huge issue for the HDD makers, as today 50~60% of their units comes directly from the PC. But not only is the top line number going to hurt them but they are also being attacked from below, as SSD has established a decent foothold this year and will only grow from here.
Like arguments about PC growth, the argument about HDD v SSD cost per GB is increasingly redundant. SSD offers speed and performance, which are much more valuable commodities today than extra storage. If you need lots of storage then you have an external HDD for that, or increasingly, the cloud. But don't clog up your PC with it. I thought Marissa Myer's recent memo to staff at Yahoo! said all that needs to be said about SSD.
Granted Seagate and WD/Hitachi can and do participate in the Enterprise SSD market. Although offering circa 10% of total SSD units, it does contribute 30~35% on total SSD revenues. But this sector too will simplify and consolidate in time & the pendulum will swing back to the NAND manufacturers.
We're gonna need a bigger boat
So, do Seagate (or WD) eventually decide to exit the PC & focus entirely on the cloud and enterprise markets alone? Or do they want to remain the kings of storage? If they do, they will need to build their own NAND. If so, I believe the timing might be right.
The current combination of soaring profits and a high share price enables Seagate to look something a lot bigger than OCZ - Micron. And by early next year the price is likely to be a lot lower than Micron's $6bn market cap today.
Micron are close to sealing their own takeover of Elpida which will help consolidate the DRAM market similar to the HDD market today. However even though I believe this is a good deal, I think the timing might not be.
DRAM pricing is heading back down again, the victim of sluggish PC demand. Today's prices are already too low to sustain continued investment, so the prospect of lower prices thru next year are going to cause a lot of damage. The rush to find homes for DRAM outside the PC has also taken it's toll and although mobile DRAM still provides good growth, increased competition has driven margins down fast.
So a window may open for a suitable investor in Micron, Seagate should watch closely. It does not have to be an outright takeover, a merger or some form of partnership could also work. They could also consider buying out Intel's remaining share of IMFT as a starting point. Sandisk could also be an option but you could rule that out because a) it is too expensive b) they partner with Toshiba.
Doing such a deal would not only re-open the PC market to Seagate but allow them to participate in the Tablet and Smart Phone for the first time. It would also be of great value to their Enterprise SSD business.
Buying a third party like OCZ, or more established enterprise players like Fusion IO, Smart or STEC fails to address the critical question of How can you be a strategic player in the client SSD market of today and the Enterprise SSD market of tomorrow without having your own NAND? The answer? You can't!
Seagate have money burning a hole in their pocket right now & pressure from the market to make some bold moves on SSD. But they would be better advised to select the correct target and move when the timing is right. I think Micron might fit the bill in 2013.
