Memory chip and LCD screen manufacturer Samsung is selling off its declining hard-disk drive (HDD) business to Seagate for approximately $1.375 billion.
Samsung’s HDD business is in a slump due to the increasing popularity of solid-state memory in place of disks on spindles in everything from netbooks to iPods and iPads.
Prices for solid-state memory are becoming more competitive and, additionally, have no moving parts to break if dropped.
That, in turn, has undermined sales of consumer laptops, which have constituted large consumers of HDDs in recent years.
The story was first reported by the The Wall Street Journal on Monday.
According to a Journal source, although Samsung’s initial asking price is high, the Korean company may be willing to accept a much lower offer — purportedly as little as $1 billion or even less from Seagate (NASDAQ: STX) in order to get out from under the division’s losses and free up funds for future investments going forwards.
“Samsung is considering selling its HDD business as it is not strategic to succeed; [Samsung] is neither a follower or a leader in the business, and it’s making a loss,” the Journal’s source is quoted as saying.
The potential sale comes as solid-state drives (SSDs) become increasingly popular vis-à-vis HDDs. Concomitantly, the HDD business is witnessing somewhat of a consolidation of the major players.
For instance, in early March, Western Digital (NASDAQ: WDC) announced plans to purchase Hitachi Global Storage Technologies for some $4.3 billion. That would leave Western Digital as the dominant HDD player with almost 50 percent market share, according to the Journal.
Meanwhile, Seagate held nearly 30 percent of the HDD market in the fourth quarter, the report said.
According to a statement released this morning, under the terms of the agreement, Samsung will receive consideration consisting of 50 percent of Seagate ordinary shares and 50 percent cash. Upon closing, Samsung will receive Seagate ordinary shares valued at $687.5 million (45.2 million shares, or approximately 9.6% ownership of Seagate, which is based on Seagate’s 30-day volume weighted average stock price prior to signing), plus $687.5 million in cash. Samsung will have a right to designate a nominee to join Seagate’s Board of Directors following closing.
The statement also says that the transactions and agreements will expand Seagate’s customer access in China and Southeast Asia. In addition, the mutual supply agreements enable Seagate to secure a source of NAND flash supply for SSD and solid state hybrid product offerings, and position Seagate to be a more significant supplier of disk drives to Samsung. The agreement also gives Samsung a significant ownership position in Seagate, the companies report.