Friday 26 April 2019

Samsung to sell hard-disk unit to Seagate

Seoul, April 19, 2011

Samsung Electronics is selling its hard-disk-drive (HDD) business to Seagate Technology for $1.4 billion in cash and stock as it seeks to exit from the cut-rate industry and focus on its bread-and-butter memory-chip business.

The deal comes as the HDD industry is set to become even more competitive with Western Digital Corp's plan to buy Hitachi Ltd's hard-disk-drive unit for $4.3 billion, a deal that would create a global leader with deep resources.

The sale will help Seagate, the world's largest maker of hard drives, better compete with the enlarged Western Digital.

The sector is battling persistent sales-growth declines and now faces a longer-term threat from wireless devices such as Apple's iPad, which use more power-efficient flash drives, or solid-state drives.

"The transactions and agreements significantly expand Seagate's customer access in China and Southeast Asia," Samsung and Seagate said in a joint statement.

Seagate expects the deal to be "meaningfully accretive" to its earnings per share and cash flow in the first full year following the closing.

Western Digital and Seagate have been struggling to adapt to a future where fewer consumers tote laptops.  Flash drives consume less power and are faster and are viewed by many as the future of the disk-drive industry.

They are increasingly being built into laptops and tablet computers like iPad. In March, Gartner slashed its 2011 PC-growth forecast by more than 5 percentage points to 10.5 per cent.

Seagate does not plan any material restructuring costs from the deal. Samsung aims to transfer the asset during 2011.

Separately, Seagate reported third-quarter profit below market expectations on lower hard-drive shipments.

Samsung will receive 45.2 million Seagate shares worth $687.5 million, or around 9.6 per cent of the company, and the rest will be paid in cash. With the deal, Samsung will become the second-largest shareholder of Seagate.

Morgan Stanley is the financial adviser to Seagate, while Allen & Company LLC advised Samsung.

Samsung will supply NAND-type flash chips to Seagate for use in its SSD products and it will source HDD from Seagate for its PCs, laptops and consumer-electronics products.

Expansion focus

The sale would give Samsung, the world's largest technology firm by revenue, more firepower for acquisitions and expansion into new business areas such as healthcare and green energy.

It would also help the company focus on the competing SSD sector, which it dominates along with Intel Corp and Micron Technology.

"Samsung has become very flexible in M&A and it could be more aggressive in acquisitions," said Park Young-joo, an analyst at Woori Investment & Securities.

"But it is unlikely to snap up operations for its core businesses such as chips where it is already the world's No.1 player... it is more likely in new business areas.”

In February, Samsung Group said it would partner with bio and pharmaceutical services firm Quintiles to create a $264 million contract manufacturer that will produce treatments for cancer and arthritis, just a few months after Samsung Electronics acquired a majority stake in local medical-equipment firm Medison.

Shares in Samsung, Asia's most valuable technology firm with a market value of $130 billion, closed up 0.9 per cent prior to the announcement. – Reuters

Tags: Samsung | Western Digital | Hard disk | Seagate | HDD | Seoul |


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