Samsung, Samsung, and more Samsung

Well, that certainly didn’t take long. Yesterday Samsung announced its hard disk business was for sale. Today it announced Seagate was buying it for $1.375 billion in cash and stock, a slight discount from the asking price.

So after the deals finish shaking down, Seagate and Western Digital will each have somewhere between 40 and 50 percent of the market, and Toshiba around 10 percent.
I still think Toshiba will decide to put its disk business on the market fairly soon. Both Toshiba and Samsung have been making hard drives for a long time, but both are large companies that make a lot of other things besides hard drives, and hard drives are no longer a growth market. If it makes sense for Samsung to sell its disk line to raise cash to invest in something that will grow, it makes sense for Toshiba as well.

I was pretty certain yesterday that Seagate would emerge as the buyer, because Western Digital and Seagate were roughly equal at the beginning of the year, as far as market share went, and one buying Hitachi’s disk business and the other buying Samsung’s disk business keeps them roughly equal. Regulators aren’t likely to mind that, especially seeing as nobody is accusing disk makers of gouging prices or anything. Not when 500GB drives cost $40 and 1TB drives cost $55.

I think Toshiba will try to sell, but I’m not about to try to guess which company will buy that business. With only two likely buyers, I guess I have a 50% chance of being right. I think Seagate is still a little bit smaller and should be more motivated, but Western Digital probably has more cash on hand.

Toshiba probably wishes they’d cashed in the business last year. Their 10 percent of the market looked more significant when there were four others with 20 or 25 percent. Whoever adds their slice of the market now will be the market leader, but not by a large margin. One bad generation of drives could probably erase that margin, with only two players in it.

Speaking of Samsung, Apple sued Samsung because their phones and tablets look too much like Apple’s, and Samsung is considering a counter-suit.

Samsung is a major supplier for Apple. Not only does Apple buy parts for phones and tablets from them, they also buy SSDs for their costliest laptops from Samsung.

Apple can buy those parts from other vendors, but they lose leverage. Apple may not like buying parts from a company that also competes with them, but they’ve been doing that off and on (mostly on) since the ’70s. And Samsung is (or was) probably willing to make Apple a better deal buying large numbers of various components from them than they’d be able to get buying parts piecemeal from lots of other vendors.

Samsung makes $6-$8 billion a year selling components to Apple. That’s four times what they just sold their disk business for, and it happens every year.

So the two companies need each other, regardless of how much they may like or dislike it. I expect what will happen is the two companies cross-licensing some patents.

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