Original URL: http://www.theregister.co.uk/2013/07/05/seagate_should_buy_fusionio/

Buy a flash kit maker now, Seagate... good ones will be gone soon

We've narrowed it down to the two best candidates

By Chris Mellor

Posted in Storage, 5th July 2013 10:04 GMT

Blocks and Files With Western Digital buying sTec and SanDisk buying SMART Storage Systems, Seagate is looking like the last player standing in the game of flash musical chairs.

These days, a lot of serious storage suppliers are keen to get into enterprise flash storage devices - meaning component devices and not complete arrays such as those supplied by Nimbus Data, Pure Storage, Violin Memory and Whiptail. There are basically three NAND storage device form factors: SSDs using Fibre Channel; SAS and SATA interfaces; and PCIe interface cards.

In very broad strokes, the current state of the main enterprise SSD and PCIe players and wannabe players is this:

We haven't included IBM in this list because, despite buying TMS and selling the RamSan (rebranded as FlashSystem) arrays, it appears to have abandoned TMS's PCIe flash products.

What is Seagate missing?

Seagate, seen from the viewpoint of The Register's storage desk, is missing a few things needed for it to be a strong enterprise flash component supplier: a flash product-skilled channel; a successful line of SSDs, and/or a successful line of PCIe flash cards; in-house PCIe flash product engineering skills; a successful flash software product set; and a working set of OEM flash component OEM and reseller relationships, on par with its HDD OEM and reseller relationships.

It is also in danger of being eclipsed by Western Digital, which could be able to start combining its separate HGST and WD-branded operations next year if all goes well with a Chinese regulator monitoring the two entities.

What should Seagate do?

El Reg sees two options: one good, and the other better but more expensive. These are to buy Virident or to buy Fusion-io.

Virident has less of a market presence than Fusion-io and has absorbed total venture funding of around $120m. A 5x exit for its venture capital backers would mean a price of about $600m, less Seagate's existing $40m making $560m.

Fusion is the market leader in PCIe flash and flash software and is capitalised at $1.35bn. Let's say, dabbing away with our broad brush again, that $1.5bn would secure it. Seagate is capitalised at $16bn and so, in principle, financing the deal is well within its grasp. Fusion-io revenues in 2012 were $359m and it's on track for revenues of $435m in 2013. Virident's annual revenues are, we estimate, in the $30m to $60m area.

There is more scope for Virident to grow. But, were someone else like HP, LSI or even WD to buy Fusion-io, Virident could get crushed by major league competition. Seagate, with its channel depth and breadth and its overall resources, could surely aim to take Fusion-io past the billion dollar run rate in a relatively short time - in our opinion, probably less than five years.

And there is also the happy coincidence that Samsung, an investor in Seagate, is an investor in Fusion-io as well.

El Reg is sure the market would applaud a Virident buy by Seagate. It would be shocked by a Fusion-io acquisition - at first. Then it would be deeply impressed, thinking that the fit between the two is excellent and there really is Seagate skin in the enterprise flash device game.

So go on then, Seagate. Buy Virident if you want to be careful and stay within limited horizons, but Fusion-io is the bolder buy - and might lead to even stronger gains. ®