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Why Seagate will Fail the SSD Challenge

by Zsolt Kerekes editor - published April 2008 (with later footnotes)
... SSD Market Analysts
on storagesearch.com
the Top 10 SSD OEMs
After SSDs... What Next?
Hostage to the fortunes of SSD
this way to the Petabyte SSD
adaptive R/W and DSP in flash SSDs
3 Easy Ways to Enter the SSD Market
SSD Myths and Legends - "write endurance"
...
Why Seagate will Fail the SSD Challenge

Seagate is the world's largest manufacturer of hard drives...........
...
In recent quarters the company has been losing market share to other HDD oems such as Western Digital.

Although it's undeniable that many parts of the hard disk market are under attack from solid state disks - I've discussed in my article How Solid is Hard Disk's Future? - why I think this factor will do no more than nibble into hard disk revenue in the short term.

Having said that - SSDs do pose a threat to HDDs in the long term - as described in the SSD market adoption model.

This article analyzes the 4 ways that Seagate has reacted (or might react) to the opportunities and threats posed by the SSD market.


1 - Hybrid Hard Disks

In January 2007 - the company, along with many other hard disk oems launched the Hybrid Storage Alliance an international group dedicated to communicating the benefits of hybrid hard drive / flash technology to computer makers and end users. Although Samsung was the first company to demonstrate a commercial prototype hybrid hard disk in May 2006.

Seagate's own Momentus 5400 PSD Laptop Hybrid Drives is a typical example of how the company is meeting the flash challenge - with a feeble 256 megabytes of flash supporting a 160G byte hard drive.

My own view is that hybrid flash hard disks fail to meet the SSD performance challenge in both consumer and enterprise applications. And I don't expect this product category to be successful. That view hasn't changed since the concept was first mooted.


2 - Seagate Branded SSDs

In August 2007 - Seagate announced it would launch a genuine solid state disk product sometime in 2008. (...Later:- That didn't happen, and the company merely repeated itself later - shifting the date to 2009.)

There has been much speculation about whether this will be done by rebadging, in-house design or acquiring an SSD oem.

Whichever route is taken - I predict that Seagate will almost certainly fail to achieve significant long term market share in the SSD market. The main reasons for Seagate's SSD failure will be:
  • insufficient enthusiasm to develop the new SSD business at a time when the hard disk market is still growing - also dampened by disillusion with hybrid products by that time.

    Why should Seagate invest manufacturing resources in an industry where in February 2008 iSuppli said flash prices were already dropping below costs and the overcrowded market for 2.5" flash SSDs points towards an upcoming costly shake-out?

  • unwillingness to kill off its own profitable hard disk products by introducing new SSD products aggressively (a hesitation which its competitors will not have)

  • lack of corporate management skills - which are different when you're competing as a newcomer in a multi-vendor fast changing market like SSDs - compared to the sluggish manufacturing led pace in the decades old hard disk market - when you're the main encumbant.



3 - Using its Patent IP to Sue and then License SSD oems

Instead of losing money on every flash SSD it sells a better option for Seagate is to deter SSDs which threaten its market with lawsuits related to its vast patent IP. This technique suffocated a serious challenge earlier this decade which came from a startup hard disk maker called Cornice.

The patent threat will fail to stem the SSD tide, but if there is enough revenue in the flash SSD market, Seagate may calculate it will make some money milking it for "technology licenses".

There are good precedents for "technology taxes". At some periods in the 1990s chipmaker Texas Instruments earned more profits from patents than it did from selling its own chips.

Apparently going down this route - in April 2008 - Seagate filed suit against STEC alleging patent infringements related to hard disk interfaces.

You can see what some other SSD analysts have to say on this subject in these article links.

Gregory Wong, at Forward Insights says "It's hard to see the financial motivation behind such a move..."

Jim Handy, at Objective Analysis looks at the weight of the patent arsenal but says that SSD Purchasers shouldn't worry. See sidebar article on the right...

Don Clark reminds us of an earlier patent dispute in the HDD market "that Rodime began in 1992, which ended after Seagate agreed to pay the Scottish company $45 million in 2000..."

...Later:- STEC dismissed the Seagate claims in these terms.

STEC is one of the first companies to build (flash) SSDs, having designed, manufactured and shipped SSDs as early as 1994, long before any of the suggested patents were issued to Seagate.

Given the effect SSDs are having on the HDD market, STEC believes that Seagate's lawsuit is completely without merit and primarily motivated by competitive concerns rather than a desire to protect its intellectual property.

STEC believes that Seagate's action is a desperate move to disrupt how aggressively customers are embracing STEC's Zeus-IOPS technology and changing the balance of power in enterprise storage. Seagate is sending a clear signal that it recognizes STEC as the leader in the SSD business and is attempting to slow down part of the growth that STEC is gaining through its SSD offering, particularly in the enterprise segment. STEC will aggressively pursue its defense to this infringement action.


4 - Acquiring an SSD Company

Whenever I've discussed this possibility with oems or VCs my argument has been - thatthe best SSD companies aren't for sale!

The management of SSD oems who have excellent IP which makes them stand out from the competition know that their companies will be worth more in a few years. And the longer they stay independent - the better.

Also excellent SSD oems are doing much better in the market than the 30 to 50 companies making me-too products. So the excellent companies are less likely to get into a distressed financial state which leads to a forced acquisition.

If, on the other hand, Seagate merely acquires a distressed SSD oem in the me-too category - it will be acquiring more market problems than solutions.

See also Charting the Rise of the Solid State Disk Market
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In later years - what happened was this.

In December 2009 - Seagate entered the SSD market with a me-too 2.5" SATA SLC SSD.

In January 2010 - LSI and Seagate announced they had collaborated on designing PCIe SSDs for the enterprise accelerator market which sampled in late 2010. It was very similar to OCZ's PCIe SSD product - and also used SandForce controllers.

In January 2012 - LSI acquired SandForce- and became yet another competitor in the crowded PCIe SSD market.

In June 2012 - Seagate announced it will use DensBits's flash care technology in the design of forthcoming consumer and enterprise SSDs. Seagate has also made an equity investment in DensBits.

In August 2012 - there were strong industry rumors that Seagate wanted to acquire OCZ. I didn't think it would bring much value to Seagate at a price which would be acceptable to OCZ - given that Seagate already had an OCZ like enterprise SSD - and would in effect be buying an SSD distributor rather than a uniquely different SSD IP set (different to what Seagate already had - or could get much cheaper.) For example it would make more sense and be better value for Seagate to acquire SMART.

Having said that - I still believe that Seagate will probably mess up and underperform any SSD acquisition that it may engage in.

It doesn't get the SSD market. And the pressures of keeping the HDD market afloat and occupying the gaps left by SSDs will be difficult enough challenges to occupy Seagate's management until the end of the HDD era.

In May 2014 - Seagate announced it had agreed to acquire the flash SSD business of LSI - which included - at the time - the industy's #2 PCIe SSD product line (by volume) and the industry's #1 most widely used by 3rd parties SSD controller products.

For more analysis - see SSD news.
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We can't afford NOT to be in the SSD market... But don't ask how we're going to make money.
Hostage to the fortunes of SSD
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selected SSD articles

2.5" PCIe SSDs

the Top SSD Companies

Enterprise SSD market silos

adaptive R/W & DSP in SSDs

What do enterprise SSD users want?

Where are we now with SSD software?

How fast can your SSD run backwards?

Failure model pitfalls when analyzing SSDs

Baldness cures, diets and SSD longevity

What makes this enterprise SSD different?

The big market impact of SSD dark matter

Enterprise SSDs - the Survive and Thrive Guide
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SSD ad - click for more info
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"Due to its initial lack of SSD market focus - Seagate - which started as a storage insider - is now seen as an SSD outsider."
from:- who's who in SSD? - Seagate
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SSD ad - click for more info
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Seagate's "view"of SSDs? - NUTS!
Editor:- In January 2011 - Seagate published a point of view document (pdf) which was designed to show that the position of the hard disk market is unassailable in the notebook market - no matter what happens in the next few years with SSDs.

Using a selective mix of market size and cost data Seagate "proves" that the size of the SSD market is constrained and that it would be uneconomic for flash makers to invest in more fabrication resources to make more SSDs.

This places in the reader's mind the suggestion that the SSD market will stay small - and by inference Seagate has nothing to worry about from this media hyped threat.
hard disk drives In a response article I show the flaws in Seagate's analysis of SSD market size constraints and explain why Seagate's thinking about SSDs is nuts.
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SSD ad - click for more info
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Seagate's 1st SSD - Finally a Real Product
Editor:- December 8, 2009 - Seagate announced details of its Pulsar SSD - a 2.5" SATA SLC SSD with 200GB capacity.

Sequential R/W rate is upto 240MB/s and 220MB/s respectively, R/W IOPS are 30,000 and 25,000 respectively. Aimed at the server market the BER is quoted as 1 sector per 10E16. Seagate says it has been sampling the new drive - its 1st SSD - since September 2009.

Editor's comments:- the remarkable thing about Seagate's 1st SSD is that it took the company so many years to enter the market. Technically - it's unremarkable.

Will it succeed in the market? In my view it would be unrealistic to assume that Seagate's long running dominance in the hard disk market will translate to dominance in SSDs too - because nearly all its potential oem customers have already been evaluating or using SSDs from other sources for upto 4 years.

And even if Seagate's new product succeeds in filling holes in design slots in 2010 - its oem customers can always replace this product with their own designs leveraging the merchant market for SSD controllers & IP.

To succeed in the SSD market - Seagate will have to demonstrateunique mastery in some aspect of SSD technology which customers value. The most attractive area will probably be in the area of reliability.

In recent quarters we've seen a spate of flaky SSDs get to market. This tendency will rise in 2010 as many storage oems decide that shipping untried products is a lower risk to their businesses than losing out on customer mind share. Each bad news story helps companies who have a clean reputation. But as a newcomer to the SSD market Seagate may have to wait years to establish its own reputation.

It's tempting to compare Seagate's entry to the SSD market with Western Digital. But the 2 cases are completely different. When WD acquired SiliconSystems in March 2009 - it got a business which had started marketing SSDs in August 2004. That gives WD's product marketers 5 years of market experience they can talk to customers about - compared to 3 months for Seagate. Nevertheless - being late is better than never.
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Seagate Sampling SSDs
In October 2009 - Seagate disclosed it has started sampling its 1st SSD product to major oems.

Companies which are many years late in emerging markets (and the SSD market already numbers over 165 companies) rarely achieve dominant market share.

Even if Seagate assembles an adequate SSD offering - the SSD market has moved on in the past few years - and it's getting easier for server companies to enter the SSD Market using acquisition, designing their own SSDs or badge engineering.

Another factor is that the company's strong experience in SAS interface design - an important factor in 15K RPM hard drives - may not be as relevant as once anticipated - because the server market is mostly adopting PCIe SSDs and SATA SSDs for DAS acceleration in new designs.
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Seagate Still Waiting for Legal Costs Related to Cornice Litigation

agrees to dismiss claims against STEC
Editor:- February 18, 2009 - a report today on Law.com says Seagate is suing its legal insurer for not paying in full the costs incurred in suing Cornice.

Cornice would have failed in the small form factor disk market anyway - even if it had won the case (which it didn't) - because of the price advantages of flash memory compared to low capacity HDDs.

A year ago Seagate's legal team fired a seemingly random warning shot at the SSD market - when it started proceedings against STEC.

Seagate today is in a desperate market situation. It dominates segments of the hard disk market which are rapidly going out of fashion. And it will most likely fail the SSD Challenge too.

When markets decline companies often switch the focus of business development activities from their marketers to their lawyers. But they still need to retain engineers to mine the gold (real or imagined) in their patent portfolios - or to build defences - because the grey suits can't do that on their own.

...Later:- February 19, 2009 STEC announced the mutual dismissal of the patent infringement lawsuit with Seagate.

"This is an important development in light of the mass adoption of SSDs," said Manouch Moshayedi, chairman and CEO of STEC. "We have a 15-year history of SSD design and development, over which time we have amassed strong SSD intellectual property. We have always maintained that the allegations brought against us by Seagate were without merit. With this case behind us, we can now optimize our resources to take full advantage of the market opportunities at hand."
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the Credit Crunch Accelerated Pressure on Seagate to Change
January 12, 2009 - Seagate announced the departure of William D. Watkins from the role of CEO.

January 11, 2009 - Seagate committed to a restructuring plan to realign its cost structure with the current macroeconomic business environment.

The Plan includes reducing worldwide headcount by approximately 2,950 people, representing approximately 6% of its global employee headcount, which is inclusive of the previously disclosed 10% reduction of the U.S. workforce.
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Seagate to buy SanDisk? - an Analyst's View
Editor:- August 18, 2008 - in his blog Gregory Wong, founder of Forward Insights, discusses the pros and cons of Seagate acquiring SanDisk or Intel's flash business.

For my views - keep reading the article on the left hand side of your screen.

...Forward Insights profile, ...SanDisk profile
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Objective Analysis profile
OBJECTIVE ANALYSIS ALERT!

April 14, 2008 SEAGATE FIRES 1st VOLLEY AT SSD MAKER STEC
Following through on the company president's promise to Fortune Magazine on March 17, Seagate Technology today filed a patent infringement lawsuit against STEC on the manufacture of solid-state drives (SSDs). Seagate alleges infraction against four Seagate patents.

Some History

Although most HDD makers are viewed as companies with no SSD technology, they really do own intellectual property that overlaps the SSD business, as the Seagate patents show. Both Western Digital and Seagate partnered with SanDisk in the 1980s as SanDisk worked to establish today's flash card market. In doing so, these HDD makers gained access to key flash SSD intellectual property, some of which is being used in today's complaint.

Implications for SSD Makers

Although we are not in a position to comment on the validity of Seagate's claim, we have been watching the technology business long enough to understand the way the patent game is often played. It is rare and very costly for such cases to be taken all the way to trial; a settlement is usually reached beforehand. As a general rule the two companies will square off by comparing the sheer volume of patents each possesses, with the owner of the larger portfolio naming the terms. In this case we compare Seagate, with a portfolio of some 3,366 patents against STEC, whose patent portfolio appears to comprise roughly about a dozen patents, and we see a phenomenal disparity. In light of this Seagate will probably either ask for royalties and perhaps for a cross-license as well.

This last might be tough for STEC to accept because that would give Seagate access to STEC's crown jewels. STEC, like most other high-end SSD makers, profits from their know-how in a market with very low barriers to entry. STEC has every reason to wish to jealously guard their proprietary technology.

About those low barriers: There are more than 40 SSD makers today, with less than 20% of these companies manufacturing a differentiated, or high-end product. The large majority of SSD makers expect to participate in the market simply by purchasing a controller from one company (often Phison or Silicon Motion), NAND chips from another (Samsung, Toshiba, Hynix, Intel, Micron) and slapping them together with a few other low-cost components into an SSD.

Now STEC is only a $189 million firm, and the royalties Seagate can collect from them will be limited. What does this mean to titans like Samsung ($103B revenues, 25,300 patents), Toshiba ($70B revenues, 27,400 patents), or Intel ($38B revenue, 15,200 patents), all of whom have shown off SSDs of their own?

As the numbers above illustrate, all of these larger companies understand the US patent system and have spent the past several years growing their patent portfolios. They will be in a stronger negotiating position against Seagate, and may fight back more aggressively than will STEC. In addition, these companies have the financial wherewithal to underwrite a costly lawsuit.

What is likely, though, is that STEC will be the proving ground for Seagate's patents, with other companies choosing to settle or fight based upon how the STEC/Seagate battle shapes up. We suspect that Seagate is already holding negotiations with all major SSD makers, and will be using this suit as a way to prove they are willing to play tough.

Implications for SSD Purchasers

Should OEMs who planned to purchase SSDs be concerned about this move?

Not really. In such dealings the plaintiff (Seagate in this case) usually will try to collect somewhat equivalent royalties from all players. This keeps the playing field relatively level: the royalties that STEC might end up paying are likely to be similar to those paid by other firms except in cases where appreciable cross-licensing can be used to negotiate lower royalties.

Even so, royalties are rarely high enough that they make a significant difference to the purchase price. This means that one firm's offerings are not likely to suffer a competitive disadvantage to their competition because both are paying about the same rate. In a way a royalty payment is like a sales tax or a VAT - if Seagate prevails then SSDs will all become slightly more costly as the price of the royalty payment is passed on to the buyer.. Implications for Seagate If Seagate profits from this move the money should all fall directly to the bottom line. Royalty payments can be a boon for a company, as SanDisk's president sometimes observes: SanDisk's royalty income is more than enough to pay for the company's R&D expenses, and R&D tends to spawn more patents. Seagate does not currently break out royalties in their financials. We have not yet scrutinized their SEC filings to see if royalties are reported there.

There is the possibility that this case will come to trial, and if it does then legal fees will be a drain on both companies. Should Seagate prevail, then their royalty income will be trimmed by their legal payments. As we mentioned before, this is a relatively rare occurrence, and we would expect to see a settlement before this case goes to trial.

Jim Handy, Objective Analysis