Seagate Technology (NASDAQ: STX) is the world's largest hard drives[2] and storage solutions manufacturer. Incorporated in 1978[3] as Shugart Technology,[4] Seagate is currently incorporated in Dublin, Ireland[5] and has its principal executive offices in Scotts Valley, California.

Seagate Technology Holdings (NYSE: STX) is the largest manufacturer of hard drives with $9.81 billion in sales in 2009.[1] The company produces drives for use in desktops, mobile applications, enterprise, and consumer electronics, and mainly sells components to original equipment manufacturers (OEMs). In 2006, Seagate acquired competitor Maxtor, which had 12% market share at the time, for a stock transaction valued at $2 billion. This merger expanded Seagate's market presence, in particular its retail channel, which now includes the popular line of OneTouch external hard drives. However, profitability may be affected in the short term before redundant costs are being eliminated.

Seagate is the undisputed market leader in terms of sales with a market share of 35%. However, it faces intense competition from rival Western Digital (WDC) and "captive" manufacturers Hitachi, Samsung, Toshiba, and Fujitsu. Captive competitors bundle hard drive sales with other products, so they are able to sell drives at break-even profit or, sometimes, even lower. In addition, advances in solid state devices (SSDs) containing flash memory threatens Seagate's revenue, because SSDs have many advantages over traditional hard drives, especially in mobile applications.

Seagate was the first to make perpendicular recording a commercial success. This technology allows for greater data capacities and faster access speeds. Seagate currently offers 3.5" drives in capacities up to 750 GB using perpendicular recording, the largest of its kind in the industry. The company is moving to transition all of its products to incorporate the technology.

Contents
1 Company Overview
1.1 Business Segments
1.1.1 Enterprise Storage[2]
1.1.2 Mobile Computing[2]
1.1.3 Desktop Storage[2]
1.1.4 Consumer Electronics Storage[2]
1.1.5 Branded Solutions[2]
1.2 Maxtor acquisition
2 Trends and Forces
2.1 Flash memory
2.2 Perpendicular recording
2.3 Commoditization of PCs
3 Competition
4 References
Company Overview

Seagate Technology is engaged in the design, manufacture and marketing of hard disc drives. Hard disc drives are used as the primary medium for storing electronic information in systems ranging from desktop and notebook computers, and consumer electronics devices to data centers delivering information over corporate networks and the Internet. The Company produces a range of disc drive products addressing enterprise applications, where its products are used in enterprise servers, mainframes and workstations; desktop applications, where its products are used in desktop computers; mobile computing applications, where the Company's products are used in notebook computers, and consumer electronics applications, where its products are used in a variety of devices, such as digital video recorders (DVRs), gaming devices and other consumer electronic devices that require storage. In addition to manufacturing and selling disk drives, Seagate provides data storage services for small- to medium-sized businesses, including online backup, data protection and recovery solutions.

The Company sells its disc drives primarily to major original equipment manufacturers (OEMs) and also market to distributors under its brand names. During the fiscal year ended July 3, 2009 (fiscal 2009), approximately 64% of its disc drive revenue was from sales to OEMs, of which Hewlett-Packard (HP) was the only customer exceeding 10% of the Company's disc drive revenue.[2] Seagate offers a range of disc drive products for the enterprise, mobile computing, desktop, consumer electronics and branded solutions markets of the disc drive industry.

Business Segments
Enterprise Storage[2]
The enterprise storage consists of Cheetah SCSI/SAS/Fiber Channel Family; Savvio SCSI/SAS/Fiber Channel Family, and Barracuda ES SATA Family. The Company's Cheetah 3.5-inch disc drives ships in 10,000 and 15,000 revolutions per minute (RPM) and in storage capacities ranging from 36 gigabyte to 600 gigabyte. Commercial uses for Cheetah disc drives include Internet and e-commerce servers, data mining and data warehousing, mainframes and supercomputers, department/enterprise servers and workstations, transaction processing, professional video and graphics and medical imaging. Savvio, its 2.5-inch enterprise disc drives, ships in 10,000 and 15,000 RPM and in storage capacities ranging from 36 gigabyte to 300 gigabyte. The Company's Barracuda ES 3.5-inch disc drives ship in 7,200 RPM and in storage capacities ranging from 250 gigabyte to 1 terabyte.


Mobile Computing[2]
The mobile computing consists of Momentus ATA/SATA Family. The Momentus family of disc drives for mobile computing disc drive products, ships in 5,400 and 7,200 RPM and in capacities ranging from 80 gigabyte to 500 gigabyte. Commercial uses for Momentus disc drives include notebook computers tablet computers and digital audio applications. Its Momentus 7200.4 is a 7,200 RPM disk drive for high-performance notebooks.

Desktop Storage[2]
The desktop storage consists of Barracuda ATA/SATA Family and DiamondMax Family. Seagate's Barracuda 3.5-inch disc drive delivers storage capacities of up to one terabyte at 7,200 RPM and is used in applications, such as personal computers (PCs), workstations and personal external storage devices. Seagate's DiamondMax 3.5-inch disc drives deliver storage capacities of up to one terabyte at 7,200 RPM and are targeted at PC’s, non-traditional advanced technology architecture (ATA) and external storage applications.

Consumer Electronics Storage[2]
The consumer electronics storage consists of Pipeline HD and DB35 SATA Family, Pipeline Mini SATA Family and LD25.2 Family. It also sells some of its 3.5-inch Pipeline HD and DB35 disk drives for use mainly in DVR's. These disk drives are optimized for digital entertainment. DB35 ranges from 80 to 250 gigabyte and Pipeline HD ranges from 160 gigabyte to 1 terabyte. The Company sells its 2.5-inch, 5,400 RPM Pipeline Mini disk drives, with capacities ranging from 80 gigabyte up to 500 gigabyte, for use in low-profile DVR's, gaming consoles, home entertainment devices and small footprint media PCs. Its LD25.2 Series 2.5-inch disk drives deliver storage capacities of 40 gigabyte and 80 gigabyte at 5,400 RPM, a solution with optimized capacity and size for notebook computers.

Branded Solutions[2]
The Company's branded solutions business provides storage products, including various home and office storage appliances. The Company ships external backup storage solutions under its Free Agent and Maxtor OneTouch product lines. Both of these product lines utilize its 3.5-inch and 2.5-inch disc drives, which are available in capacities up to two terabyte and 500 gigabyte, respectively.

Maxtor acquisition
In 2006, Seagate acquired rival hard drive maker Maxtor in a stock transaction worth $1.9 billion. Before the acquisition, Seagate and Maxtor held 29% and 12% of the hard drive market respectively. The merger solidified Seagate's position as the market leader, gave Seagate rights to Maxtor's popular "OneTouch" line of external hard drives for consumers, and expanded Seagate's retail business. Although Maxtor was posting losses before the merger, the two companies intend to save $300 million in redundant costs. However, it is uncertain how soon these cost savings can be realized, and the acquisition may reduce short-term profitability.

Trends and Forces

Flash memory
Advances in flash memory technology and growing sales have put pressure on the hard drive market. Unlike hard drives, flash memory are solid state devices, so they contain no moving mechanical parts, use less power, are smaller and less likely to break. These advantages make flash memory very attractive for use in portable devices such as digital music players and cameras. Flash memory has not replaced hard drives because cost is higher, transfer speeds are slower, and there is a limit of approximately 100,000 read/write operations. However, each of these limitations are being gradually overcome with technological advances.

The next advance for flash memory would be to replace hard drives in hard drive-based digital music players, such as iPods, and laptops. Flash memory makers such as SanDisk would have the most to gain from adoption of the new technology, while hard drive manufacturers such as Western Digital and Seagate would have the most to lose. Diversified companies like Samsung would be less affected, because they manufacture both types of storage or other types of products. Samsung and SanDisk have both announced or released solid state disks (SSDs) up to 64 GB, which can effectively compete with smaller sized hard drives. Dell has already began shipping ultra-portable laptops with SSDs. Although hard drives are still the dominant storage device, hard drive manufacturers are wary of the threat of flash memory.

Perpendicular recording
Perpendicular recording is a data recording technology that allows for greater data densities, which leads to greater drive capacities and faster access speeds. Traditionally, bits of digital data are stored as magnetic information on the hard disk platter with the magnetic poles aligned along the plane of the platter. There is a physical limit to how closely data can be packed while maintaining data stability. However, perpendicular recording technology overcomes this limit by aligning the poles of magnetic information perpendicular to the platter using a different writing mechanism and recording material with higher magnetic fidelity. Whereas traditional longitudinal recording has an estimated limit of 100 to 200 gigabits per square inch, perpendicular recording allows for densities of up to 1000 gigabits per square inch.

Hard drive manufacturers are expected to adopt the technology rapidly because current data densities are near the physical limit. Seagate was the first to successfully implement the technology, and is currently shipping 3.5" drives with capacities up to 750 GB. In comparison, Western Digital's largest 3.5" drive, which uses traditional longitudinal recording, has a maximum capacity of 500 GB. Seagate has announced that it will intend to eventually make perpendicular recording a standard feature in all of its drives.

Commoditization of PCs
Over the last few decades, PCs have become an increasingly important part of our daily domestic and work lives. PC's are used for tasks ranging from rudimentary email and word processing to advanced computer programming. Commoditization is a process that transforms the market for a unique, branded product into a market based on undifferentiated price competition. The commoditization of PCs would hurt PC manufacturers and OEM component suppliers such as Seagate, as they face intense pressure to lower prices.

Competition

Seagate Technology competes with Western Digital (WDC), Fujitsu Limited (6702-TO), Hitachi (HIT), Samsung Electronics (SEO:005930), Toshiba (TOSBF), Iomega (IOM), Lacie (EPA:LAC), Micron Technology (MU), Samsung Electronics (SEO:005930), and SanDisk (SNDK).

The market is divided into "independent" and "captive" manufacturers. Seagate and Western Digital are independent manufacturers, meaning that they are entirely focused on manufacturing hard disk drives. Captive manufacturers Hitachi, Samsung, Toshiba, and Fujitsu are more diversified companies with a hard drive division. Captive competitors may sell hard drives at break even profit or even at a loss when it can bundle drives with other more profitable components, such as computer memory, for example. This makes competition especially intense and sometimes irrational for independent manufacturers like Seagate.

Due to the similarities in market share and business focus, Seagate and Western Digital are chief rivals in the market. The two companies' offerings cover 97% and 90% of the market respectively. Both companies produce desktop, mobile, enterprise, and consumer electronics products, and sell mainly to OEMs. Thus, many of the same market forces such as seasonal changes in sales and commoditization of PCs affect the two companies in the same ways.

One particularly important rising competitor to hard drives are flash memory-based solid state devices (SSDs). Unlike hard drives, flash memory are solid state, so they contain no moving mechanical parts, use less power, are smaller and less likely to break. These advantages make flash memory very attractive for use in portable devices such as digital music players and cameras. Flash memory has not replaced hard drives because cost is higher, transfer speeds are slower, and there is a limit of approximately 100,000 read/write operations. However, each of these limitations are being gradually overcome with technological advances. Samsung and SanDisk have announced or released SSDs up to 64 GB that have already began to replace hard drives in ultraportable laptops. Although hard drives are still the dominant storage device, SSDs represents an impending threat to Seagate's business.

Seagate was the first to make perpendicular recording a commercial success. This technology allows for greater data capacities and faster access speeds. Seagate currently offers 3.5" drives in capacities up to 750 GB using perpendicular recording, the largest of its kind in the industry. The company is moving to transition all of its products to incorporate the technology.

References
 
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