| One of
the world's top 10 storage companies by revenue, 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.
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 - that
the 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 |
|
| . |
|
| the Flash SSD Performance
Roadmap |
A reader asked me a very
good question.
"Is there an industry roadmap for future flash
SSD performance?"
That prompted other questions like... How fast
are flash SSDs going to be in 2009? or 2012? What are the technology factors
which relate to throughput and IOPS? And how much faster will they be than
today.
There wasn't a simple answer I could give at the time. Clues lay
scattered all across this web site
and in my many discussions about the market...
But I agreed there
should be a single place on the web where these answers could be found. |
 |
Forget Moore's Law. That
gives you the wrong answer, and this article explains why.
...read the article | | |
| |
|
|
| . |
|
|
| . |
 |
OBJECTIVE
ANALYSIS ALERT!
April 14, 2008 SEAGATE FIRES FIRST 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
| | |
