According to a report in The Wall Street Journal, Samsung Electronics Co. Ltd. (005390), part of the massive South Korean Samsung conglomerate, is looking to sell its hard-drive business amid losses. It's reportedly been shopping around the unit with a "buy it now" price of a cool $1.5B USD.
A sale would relieve Samsung of one of its largest money losers. Samsung has struggled in sales, falling behind Western Digital Corp. (WDC) and Seagate Technology PLC (STX). Currently in third place, based on recent estimates, it still leads Japanese hard drive maker Toshiba.
Third place is relatively "bad" for Samsung. The company is the world leader in sales of liquid crystal display (LCD) televisions and is currently ranked second, behind Nokia Oyj.(NOK), in phone sales.
And there's more to the story -- Samsung's LCD and phone units enjoy healthy margins, driving large profits. By contrast, its hard drive unit has been in the red.
Samsung hopes to direct the assets from the sale to funding its high growth projects.
According to the report, Samsung is relatively desperate to dump the unit and may accept less than $1B for it -- significantly less than the official "sticker price". Seagate is viewed as a potential buyer.
Seagate is incorporated in Dublin, Ireland, but has its principal executive offices in Scotts Valley, California. The company owns approximately 25-30 percent of global hard drive sales, according to various estimates. Samsung owns between 10 and 15 percent.
Still, the deal is relatively "safe" from an antitrust legal perspective, as the companies don't overlap as much as you might expect. Samsung sells heavily to consumers, while Seagate's strong sales are in the corporate/IT sector.
Samsung was recently forced to announce falling profits amid mediocre sales growth. The hard drive unit is a major source of company's issues.
Hard drive sales have struggled of late, facing pressure from solid state drives (SSDs) -- NAND flash memory based storage devices. Hard drive manufacturers have responded with price cuts, but the cuts have hurt their bottom lines.
In March Japanese electronics giant Hitachi Ltd. agreed to sell its hard drive business -- Hitachi Global Storage Technologies -- to Western Digital for a cool $4.3B USD in cash and stock. The purchase gave Western Digital an estimated 50 percent market share, and a commanding leading in the hard drive business.
Competition-wise a Seagate purchase of Samsung's HDD unit would be a mixed bag. On the one hand it would reduce hard drive buyers options to only three major players -- Western Digital, Seagate, and Toshiba. On the other hand it would prevent Western Digital from gaining a near-monopoly on the market.
Following the recent recession, the pace of high profile mergers, acquisitions, and unit closures has quickened in the U.S. and abroad. Some high profile recent events include Oracle Corp.'s (ORCL) acquisition of Sun Microsystems, AT&T, Inc.'s (T) pending acquisition of T-Mobile (DTE), Intel Corp.'s (INTC) acquisition of McAffee, and Hewlett-Packard Company's (HPQ) acquisition of Palm, Inc. And Phillips recently gave Samsung a boost by announcing the closure of its LCD TV unit.
All of these moves have the net effect of reducing the number of widely available choices users have in certain electronics fields, in today's market.
