Western Digital Eyes Enterprise SSD Market with sTec Buy

By Pedro Hernandez

Western Digital announced today that it is acquiring sTec, a Santa Ana, Calif.-based enterprise solid-state drive (SSD) and storage systems specialist, for $340 million in cash or $6.85 per share. The companies expect the deal to close in the fourth quarter of 2013.

The move, according to Western Digital CEO Steve Milligan, signals SSD's growing stature in the data center. "Solid state storage in the enterprise will play an increasingly strategic role in the future of Western Digital," he said in a statement.

sTec's SSD expertise will bolster Western Digital's efforts to meet rising demand for enterprise-grade flash-based storage. "This acquisition is one more building block in our strategy to capitalize on the dramatic changes within the storage industry by investing in SSDs and other high-growth storage products," added Milligan.

The longtime hard drive manufacturer is making the buy through its subsidiary, HGST. Formerly Hitachi Global Storage Technologies, HGST was finally acquired by Western Digital in 2012 for $4.9 billion after meeting conditions set by the Federal Trade Commission (FTC) and China's Ministry of Commerce.

Snapping up sTec is the latest in Western Digital's efforts to service a growing market for enterprise flash. In May 2012, the company, traditionally known for its hard disk drive (HDD) portfolio, made waves by unveiling the industry's first SSD with a 12 Gbps serial-attached SCSI (SAS) interface.

And in March it was revealed that the company invested $51 million in a flash storage pure-play Skyera. The San Jose, Calif.-based startup is a provider of all-SSD (solid-state drive) storage arrays.

In a research note, Stifel analysts Aaron C. Rakers and Joseph Quatrochi said that the deal is likely a "technology-focused move," citing sTec's controller IP and a total of 133 patents issued and pending. The buy, they noted, is "a reflection of WD’s efforts to further expand its strong/strengthening position within the overall enterprise-class market."

sTec CEO Mark Moshayedi's remarks hint that the acquisition comes as somewhat of a relief after a bruising couple of quarters. On May 8, the company announced that its sales during the first quarter of 2013 had dipped 56 percent to $22 million on a year-over-year basis. The company suffered a $19 million loss (non-GAAP).

"It will be an important next step in proliferating many of the innovative products and technologies that sTec has been known for throughout its 23-year history and provides immediate value for our shareholders and a strong future for our employees and customers," said Moshayedi in today's statement.

Pedro Hernandez is a contributing editor at Small Business Computing and InternetNews.com. Follow him on Twitter @ecoINSITE.

This article was originally published on June 24, 2013