Seagate has agreed to buy Samsung's hard drive business for $1.38 billion in a further consolidation of an industry that faces growing competition from a newer storage technology, popular in smartphones and tablet computers.
The cash-and-stock deal announced Tuesday would give South Korean electronics manufacturer Samsung Electronics Co. a stake of nearly 10 percent in Seagate Technology PLC, one of the few remaining makers of hard disk drives, which store data in traditional PCs.
Mobile devices including phones, iPads and some digital music players typically use flash memory chips instead of spinning hard drives. Although it stores less data than hard drives, flash memory is compact and durable, with no moving parts.
Just last month, Seagate rival Western Digital Corp. agreed to buy Hitachi Global Storage Technologies for $4.3 billion. Wedbush Morgan analyst Kaushik Roy said that once both deals are completed, Western Digital would own about half of the hard drive market and Seagate roughly 40 percent. Toshiba Corp. would be a distant third with 10 percent of the market.
With three companies making hard drives, he added, antitrust issues are unlikely to arise. Seagate and Samsung expect to close the transaction by the end of the year. It must still be approved by regulators in the U.S. and abroad.
The companies also agreed to extend their patent cross-licensing agreement and jointly develop business data storage products. Samsung has agreed to supply Seagate with chips for its hard drives. Seagate, meanwhile, would supply drives for Samsung's computers and consumer electronics.
In addition, a Samsung executive would be nominated to join Seagate's board. Samsung plans to pay Seagate half in cash and half in stock.
Despite the popularity of flash memory, Roy said the hard drive market is still growing, with a "huge population" of people outside tablet-heavy hubs such as New York and San Francisco just buying their first laptops. There's also demand for hard drives, which are cheaper than flash for the same amount of storage, from large corporations.
Steve Luczo, Seagate's chairman, president and CEO, said the Samsung deal would let the company deliver a broader range of storage technologies.
Both companies say the deal would help them respond to the evolving data storage market. Besides flash memory, hard drives face competition from a storage technique known as cloud computing. Data are stored on remote servers and accessed through an Internet connection, reducing people's needs for large storage capacity on their machines.
Roy said the deal helps Samsung shed an unprofitable business that wasn't core to its operations.
The analyst also said consolidation should help keep prices up. Few people are loyal to one brand of hard drive or another, so pricing competition is stiff. When one vendor drops its price, the rest of the industry typically follows, he said. With consolidation, there would simply be fewer hard drive makers out there to undercut one another's pricing.
Shares of Seagate, which is based in Dublin and operates out of Scotts Valley, Calif., increased 5 cents to $17.89 in afternoon trading Tuesday. The company also reported fiscal third-quarter earnings Tuesday that were slightly below Wall Street's expectations, dragged by lower revenue and slightly higher operating expenses.