Seagate to Acquire LSI Flash Businesses From Avago for $450 Million

Seagate Technology plc and Avago Technologies Limited, a semiconductor device supplier to the enterprise storage, wired, wireless and industrial end markets, have entered into a definitive asset purchase agreement under which Seagate will acquire the assets of LSI’s Accelerated Solutions Division (ASD) and Flash Components Division (FCD) from Avago for $450 million in cash.

The acquisition strengthens Seagate’s strategy to deliver a suite of storage solutions, providing the company with enterprise PCIe flash and SSD controller capabilities to deliver solutions for the growing flash storage market.

LSI’s ASD business, which is the second largest player in the PCIe flash space, offers a differentiated enterprise-grade PCIe flash solution focused on the high-growth cloud and hyperscale markets. LSI’s FCD business, led by its SandForce SF2000 and SF3700 controller products, is driving a multi-product roadmap to address volume markets.

“Seagate is committed to providing our customers with a complete range of storage solutions, and this acquisition will enhance our flash storage offerings to supplement our existing portfolio,” said Steve Luczo, Seagate chairman and CEO. “LSI’s ASD business has the broadest PCIe flash product offering and intellectual property in the market today and the FCD business has best-in-class SSD controllers with proven support for a wide range of applications. This acquisition immediately boosts Seagate’s range and depth of flash storage capabilities today, and these teams bring to Seagate the expertise to accelerate our roadmap in this important and growing market.”

In fiscal 2015, Seagate would expect the combination of its enterprise SSD product line and these SSD controller families to generate revenues of at least $150 million and be slightly accretive to the company gross margin with operating margin headwind of $30 to $40 million. As Seagate drives operational synergies and leverages its SSD technology into its product portfolio, the company would expect the operating margin contribution from its SSD business to be neutral to positive in fiscal 2016 and beyond.

The transaction is expected to close in the third quarter of calendar year 2014, subject to the satisfaction of customary closing conditions and the receipt of certain regulatory approvals, including those required by the Hart-Scott-Rodino Antitrust Improvements Act.

Comments

The two biggest hard disk drive manufacturers Seagate and WD are investing heavily in SSDs to compensate the slightly declining market of their core business, HDD, as solid-state devices are progressively replacing magnetic rotating units.

Here it's the first big investment of Seagate in this area, $450 million, after a lot of money put in its own R&D with small results.

On its side WD has already spent here more than $1 billion to acquire three companies last year, sTec for $340 million, Velobit for an undisclosed amount, and Virident Sytems for $385 million, all of them being incorporated into HGST subsidiary, more successful in this SSD sector than Seagate.

But the two HDD makers are far behind flash chip makers Samsung, SanDisk, Intel, Micro and Toshiba in the global worldwide shipments of SSDs, HGST being well positioned only in enteprise units.

With this LSI business, Seagate is getting 6Gb SATA SandForce flash controller activity, one of the most successful line in the SSD controller area, embraced by lot of SSD manufacturers around the world - but now being in competition with Seagate, also in SSDs. Customers included these past years Adata, AMP, Asus ROG, Biwin, Centon, Cisco, CoreRise, Corsair, Digicube, Edge Memory, Exceemo, G.Skill Phoenix, Innodisk, Intel, Kingmax, Kingston, I-O DataDevice, Mach Xtreme Technology, Mushkin, OCZ, OWC, Patriot, PNY, Renice, RunCore, Silicon-Power, Team Group, Unigen, Smart Modular Technologies, Solidata, Soligen, Super Talent, Toshiba, Transcend, Verbatim and Viking Modular Solutions.

Remember start-up SandForce was acquired by LSI for $370 million in 2011 - becoming the Flash Components Division of LSI -, which means the global deal of $450 million is a fair price for Seagate three years later.

Seagate also get the LSI Wharpdrive and Nitro lines of PCIe SSDs with capacity up to 3.2TB to expand its position in the enterprise market. The company was for a while in PCIe SSD with a product from Virident later acquired by rival WD.

Singapore-based chip maker Avago completed the acquisition of LSI earlier this month for $6.6 billion. For the company, it's a good deal as this business was not really its core activity, being essentially in III-V compound semiconductor design and processing, and not only for storage.