Hard drive vendor Seagate Technology‘s acquisition of LSI’s flash components division for $450 million in cash is just another signal that the flash storage market is heating up.
This is Seagate’s second foray into flash this year. In February, Cupertino, Calif.-based Seagate invested $40 million into little known Virident Systems, which develops solid state disks for enterprises. The investment also came with an OEM agreement that will see Virident’s Flash technology available through Seagate channel partners.
Multiple sources have the flash market growing between 58 and 70 per cent at a compound annual growth rate and reaching $1.2 billion by next year.
Seagate concluded the LSI acquisition from Avago Technologies Ltd., which owns LSI and is a semiconductor device vendor. The deal works as an asset purchase agreement under which Seagate will acquire the assets of LSI’s Accelerated Solutions Division and Flash Components Division from Avago for $450 million.
According to Seagate, the LSI/Avago deal was needed to fulfill its strategy to deliver a full suite of storage solutions. LSI will give Seagate an enterprise-level PCIe flash and SSD controller products for its portfolio.
LSI’s Accelerated Solutions business is currently the second largest player in the PCIe flash space and was built for cloud and hyperscale applications. Meanwhile, LSI’s flash components business has a flagship product called SandForce SF2000.
Steve Luczo, Seagate chairman and CEO, said the company is committed to providing customers with a complete range of storage solutions, and this acquisition will significantly enhance our flash storage offerings to supplement our existing portfolio. 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 lines 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. 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.
