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Seagate To Acquire Samsung's HDD Business

The $1.375 billion purchase would make Seagate the second largest maker of HDDs and expand its SSD business.

Seagate announced Tuesday that it is purchasing Samsung's hard disk drive (HDD) business, which consolidates the HDD market down to two major players: Seagate and Western Digital.

Seagate will pay Samsung $1.375 billion in equal parts stock and cash for the Samsung unit, according to the announced terms of the agreement. Samsung will own about 9.6% of Seagate and the companies will extend and enhance existing cross-license patents. Samsung will also provide NAND flash memory for Seagate's enterprise solid-state drives (SSDs), solid-state hybrid drives, and other products. In addition, Seagate will provide drives for Samsung's PCs and both companies will co-develop enterprise storage gear.

The companies said the deal will help to "better align their current and future product development efforts and roadmaps, accelerate time-to-market for new products and position the companies to better address rapidly evolving opportunities in markets including, but not limited to, mobile computing, cloud computing, and solid state storage."

The deal adds additional storage capabilities for Seagate and will enable the company to further develop solid-state-disc (SSD) technology and hard drives. Seagate and Samsung developed a joint development pact for SSD controllers in August, 2010.

"We are pleased to strengthen our strategic relationship with Samsung in a way that better aligns both companies around technologies and products," said Steve Luczo, Seagate president and CEO, in a statement. "With these agreements, we expect to achieve greater scale and deliver a broader range of innovative storage products and solutions to our customers, while facilitating our long-term relationship with Samsung."

This acquisition comes on the heels of Western Digital's purchase of Hitachi's hard drive manufacturing unit for $4.3 billion in cash and stock in March 2011. That deal brought Western Digital's HDD market share to about 49%, according to market research firm HIS iSuppli. Seagate had about 32% of the market share as of the first quarter of this year, but will now own about 40%, according to the firm.

However, HDD sales have waned as the use of SSD drives has increased due to the popularity of tablet and notebook computers. As Samsung is the world's largest makers of NAND flash memory chips for SSDs, the new acquisition allows Seagate to "secure an important source of leading-edge NAND flash supply as the company expands its SSD and solid state hybrid product offerings," Seagate said in a release. Samsung's SSDs are a key component for Apple's flash-based iPods.

Some believe the industry consolidation that was produced through the acquisition will help to create price stability in the market. Toshiba is the only other remaining supplier of HDDs and holds an estimated 10% market share.

In a conference call, Seagate officials said the Japan earthquake and aftermath have affected the HDD industry and highlight the fragile nature of Japan's dominance in the HDD production market. Disruptions to HDD production could cause shortages and price increases for certain products, they said.

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