Feeds

Is Seagate poised to go private?

What spins around goes around

Top 5 reasons to deploy VMware with Tegile

Seagate has been in discussion with a pair of private equity firms about a move off the stock market and back into private ownership, according to reports.

The alleged discussions have been reported by normally reliable Reuters, Bloomberg and others.

The talks between Seagate, TPG Capital and Silver Lake Partners have not resulted in a decision yet but finance isn't the show-stopper, although Seagate is capitalised at $5.39bn. TPG and Silver Lake are the former owners of Seagate, buying it in 2000 and taking it public in 2002 for $12 a share. The shares are now trading at $11.43, a far from stellar performance. Over the same period Western Digital's shares have risen from $7 to $27.47, emphasising just how much money TPG, Silver Lake and other investors could have made by investing in WD instead of Seagate.

A buyout price of $7bn has been mentioned.

The usual reasons for taking a public company private are to make it more efficient by cutting costs and then selling it on at a higher price.

Seagate has stumbled of late, losing its disk drive unit shipment leadership position to Western Digital in the last couple of quarters. It is still the disk drive industry's revenue leader though.

The company made mis-steps in the 2.5-inch drive sector, letting competitors gain market share with better products. This partly caused the ejection of CEO Bill Watkins and his replacement as CEO by chairman Stephen Luczo in January last year. Luczo has instituted cost-cutting, with some redundancies and facility closures, but also pushed out new products by increasing the number of components in the company's drives to compensate for a slower advance in areal density.

These have included a 5-platter, 3TB desktop drive, a Momentus XT drive which includes an embedded flash cache to speed read I/O, and yesterday's 4-platter, 1.5TB, FreeAgent GoFlex consumer 2.5-inch drive. Seagate has also introduced its first solid state drive, the Pulsar, and instituted an agreement with Samsung to develop SSD controller technology.

This is in no way a struggling and unprofitable corporation but it is one that, in some people's minds, has not recovered from its mis-steps in 2008 quickly enough. Its last reported results didn't meet expectations and competitor Western Digital is now capitalised at $6.3bn, exceeding Seagate's value. It's said that Seagate's shares are trading at a low price compared to the company's revenues, making it relatively cheaper to buy.

However future projections of disk drive sales have been scaled back and it's reported that Seagate cannot see its way to high enough and consistent enough revenues to justify a buyout at the $7bn level.

There have been questions raised as to why Seagate has not appointed a new CEO yet. The inability to see off Western Digital and the possibility of a buyout indicate that Seagate has not yet settled on a way forward, and that financial manipulation is occupying the minds of its leadership as well as manufacturing efficiency.

You can't imagine John Coyne's crew at Western Digital being distracted in the same way.

While Seagate investors have been thinking of taking the company private, Hitachi disk drive-manufacturing subsidiary Hitachi GST has been thinking of going public via an IPO. It's reported that it is looking to raise $1bn and has appointed six banks to run the sale of stock. The company is still saying nothing publicly, apart from that it is exploring all options for business growth, including an IPO.

The word from people close the the UK side of Hitachi GST is that its execs are convinced an IPO is coming.

The main component of cost in a hard disk drive is the manufacturing. Making 100 million disk drives a year from a manufacturing base costing, for argument's sake, $3bn, means the average selling price for a drive has to be above $30 just to recoup the manufacturing cost. If Seagate were to buy Hitachi GST then it could make more drives and lower its average manufacturing cost per drive. Were it to make 150 million drives a year from a $4bn manufacturing cost base then its average manufacturing cost per drive would be $26.66, enabling more profit to be made.

Volume and manufacturing cost are the twin Gods of the hard disk drive industry, with the third celestial necessity being product performance leadership or equivalence with the competition. If Seagate can work these three entities to its advantage then it can regain unit ship leadership over Western Digital. That ought to send its share price up. ®

Beginner's guide to SSL certificates

More from The Register

next story
Ellison: Sparc M7 is Oracle's most important silicon EVER
'Acceleration engines' key to performance, security, Larry says
Oracle SHELLSHOCKER - data titan lists unpatchables
Database kingpin lists 32 products that can't be patched (yet) as GNU fixes second vuln
Lenovo to finish $2.1bn IBM x86 server gobble in October
A lighter snack than expected – but what's a few $100m between friends, eh?
Ello? ello? ello?: Facebook challenger in DDoS KNOCKOUT
Gets back up again after half an hour though
Oracle crashes all-flash bash: Behold, our hybrid FS1 arrays
Mutant flash/disk box a pillar of storage: It's axiomatic
prev story

Whitepapers

Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
Storage capacity and performance optimization at Mizuno USA
Mizuno USA turn to Tegile storage technology to solve both their SAN and backup issues.
The next step in data security
With recent increased privacy concerns and computers becoming more powerful, the chance of hackers being able to crack smaller-sized RSA keys increases.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.
A strategic approach to identity relationship management
ForgeRock commissioned Forrester to evaluate companies’ IAM practices and requirements when it comes to customer-facing scenarios versus employee-facing ones.