Why Seagate will Fail the SSD Challenge

• editor's comments:- one of the world's top 10 storage companies by revenue, Seagate is the world's largest manufacturer of hard drives.
  
  Its revenue for the most recent 4 quarters ended March 28, 2008 were $12.54 billion. That's a 12% increase compared to the same 4 quarters in the year ago period. But revenue growth in the most recent quarter had dropped to 10% - which may be a sign that the company is losing market share.
  
  Although 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 not seriously threaten hard disk market growth for the next few years. But in the much longer term - solid state storage is a threat.
  
  Seagate has reacted to the SSD market opportunity and threat in 3 significant ways.
  
  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. "In such dealings the plaintiff (Seagate in this case) usually will try to collect somewhat equivalent royalties from all players.."
  
  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.

Seagate Technology

Seagate is the worldwide leader in the design, manufacture and marketing of hard disk drives, providing products for a wide-range of applications, including Enterprise, Desktop, Mobile Computing, Consumer Electronics and Branded Solutions. Seagate's business model leverages technology leadership and world-class manufacturing to deliver industry-leading innovation and quality to its global customers, with the goal of being the low cost producer in all markets in which it participates. The company is committed to providing award-winning products, customer support and reliability to meet the world's growing demand for information storage. Seagate can be found around the globe and at www.seagate.com.