Seagate Technology PLC
) is a leading provider of electronic data storage products such
as hard disk drives for personal storage and enterprise
applications. Its main products are hard disk drives or HDDs.
Seagate manufactures electronic data storage products, addressing
a broad spectrum of clients such as enterprise applications,
client compute applications and client non-compute
In an earlier note title
A Snapshot Of Seagate's Key Businesses And $33
we gave a snapshot of the company's main businesses. Below we
look at some of the key drivers to Seagate's business as well as
trends supporting the growth of the storage business.
See Our Full Analysis Of Seagate
Growth In High Definition Digital Content Drives Storage
The high growth of digital content is driving the need for high
capacity storage to aggregate, host, distribute, manage, backup and
use digital content. The need to access rich data and content is
being driven by a highly mobile and increasingly connected user
base. The traditional enterprise and client compute markets will
continue to demand high capacity storage solutions and will be best
served by hard disk drives, where manufacturers compete on the
ability to deliver cost effective, reliable and energy efficient
mass storage devices. The increasing demand for HD content for
media consumption and rich formats such as HD DVD and Blu-Ray,
drives the demand for high capacity disk drives solutions in the
According to Cisco, the global cloud traffic will grow at an
annual rate of 45% and reach 4.3 zetabytes by 2016, while global
data center traffic will grow to 6.6 zetabytes. Nearly 20% of this
data will be solely due to online video streaming, email and music.
Seagate is leveraging this end-user content creating phenomenon
with value add products focusing on consumers such as DVR backups
and wireless backup networks as well as media storage devices
designed to connect easily with different media sources such as
TV's, radios and gaming consoles.
In early October 2011, flooding in Bangkok, Thailand, caused
many manufacturing industrial parks to shut down operations.
Factories supporting the HDD industry's supply chain were
concentrated within these industrial parks to reduce costs and
improve logistics, and during this temporary suspension of
operations, demand exceeded supply, leading to high prices in
HDD's. This led to higher prices for the industry's average
selling price per unit. Seagate's ASP for hard disks, surged from
$55 in the third quarter to $68 in the fourth quarter of 2011. The
industry has recovered since the flooding, and we believe that the
prices will stabilize and then begin to fall as operations ramp up
again. According to leading market research firm iSuppli, this is
the primary reason for Seagate's leading position in the HDD market
in the recent quarters, as it was the least affected.
Shift From Hard Disk Drives To Solid State
All leading laptop manufacturers are now offering laptops with a
hybrid HDD-SSD primary memory and high-end high-performance laptops
with complete SSD memory. Solid state drives are much more
expensive per GB, and this is the primary reason for the slow
adoption of SSD as the primary memory component. As production
capacity increases and technology changes leads to a drop in SSD
prices, we can expect that solid state drives will become a
standard for notebooks and netbooks. These drives are unlikely to
find extensive use in desktops in the near future.
Seagate was late to adapt to this trend and has been making
investments into companies such as LaCie and DensBits to acquire
know-how in the SSD and USB flash storage market. We currently
estimate its market share to be in the low single digit figures,
but the company has sales clout and production facilities to
quickly gain market share.
Rise Of The Tablet Computer
All tablet computers use solid state memory chips as their
primary storage memory, and we estimate that tablet sales will
outstrip notebook and netbook sales by the end of our forecast
period. HDD memory is relatively unresponsive, slow and bulky and
will not find application in tablet computers. The increasing
popularity of tablet computers is the primary reason for growth in
the SSD space. We estimate that tablet computer sales will outstrip
that of laptop sales by the end of our forecast period and this is
a major trend shaping the storage industry.
Growth In Cloud Computing And Remote Storage
We expect Seagate's enterprise business to be driven by
businesses deploying cloud computing environments in an effort to
pool resources and cut costs. Remote storage is becoming a standard
for most enterprises and has even gained traction with retail
customers with services like iCloud, Dropbox, Skydrive and Google
Drive. To achieve the high performance needed with cloud computing,
we can expect the hybrid SSD-HDD enterprise storage drives to
become popular in the future.
We currently have a
$33 Trefis Price Estimate for Seagate
, which is in-line with its current market price.