Samsung Seeks to Unload Hard-Disk-Drive Business

APRIL 18, 2011 THE WALL STREET JOURNAL

By JUNG AH-LEE
SEOUL—Samsung Electronics Co. is considering selling its money-losing hard-disk-drive business to raise cash to invest in new growth areas, according to a person familiar with the matter.
Samsung is looking to sell the unit for $1.5 billion, but it may consider a deal under $1 billion, the person said.

A potential buyer for the business is hard-disk maker Seagate Technology Inc., the person said.
A spokesman for the Scotts Valley, Calif.-based company declined to comment.
Samsung Electronics, the world's biggest maker of memory chips and liquid-crystal-display televisions, has seen its earnings decline recently; earlier this month, it gave a weak earnings estimate for the first quarter. A sale of the company's hard-disk business would help generate cash for reinvestment in promising business areas.

In February, Samsung Electronics said it would set up a joint venture with U.S.-based biopharmaceutical-services firm Quintiles Transnational Corp. as part of a move to diversify away from consumer electronics.

The hard-disk-drive, or HDD, industry has been under pressure from the success of sales of Apple Inc.'s iPad and other tablet computers, which store data on flash-memory chips rather than on magnetic disks.

The new devices are weighing on the sales growth of consumer-laptop computers, which are major users of disk drives.

Samsung, which held about an 11% share of the global HDD market in the fourth quarter, has been losing money with the business.

"Samsung is considering selling its HDD business as it is not strategic to succeed; [Samsung] is neither a follower or a leader in the business, and it's making a loss," said the person familiar with the matter.

The person said, "$1.5 billion seems a reasonable price to sell," but added "it could even be sold for under $1 billion as Samsung is trying to get rid of it."
In March, Western Digital agreed to acquire Hitachi Ltd.'s hard-disk-drive business for about $4.3 billion in cash and stock, a deal that created a dominant player with a nearly 50% market share.
Seagate accounted for 29% of HDD shipments in the fourth quarter, according to research firm iSuppli.
Richard Kugele, an analyst at Needham & Co., said "there is really no legitimate alternative" to a sale of the unit to Seagate other than for Samsung to shut it down.

He predicted such a sale wouldn't be opposed by antitrust authorities because there is little overlap between the Samsung and Seagate businesses in what the industry calls enterprise drives, which are typically used with server systems and is an area where Seagate has the largest market share.

—Don Clark contributed to this article.