News

posted on 30 May 2008 12:20

Seagate and STEC have been in acquisition talks, according to a source familiar with the situation, but Seagate's suggested price was not high enough.

STEC produces the Zeus-IOPS Fibre Channel-connect solid state drives (SSD) that EMC is using as a top performance tier in its Symmetrix drive arrays. No other SSD vendor has data center-class FC-connected SSDs, instead using the SATA interface.

Seagate intends to be a player in the SSD market but has no SSD sub-system manufacturing capability or controller IP for things such as wear-leveling to overcome flash SSD write cycle limitations.

I'm told that Seagate would need to offer something like a 30 percent premium to STEC's current share price of around $13, which would value STEC at around $810 million compared to its current market capitalisation of $623.29 million. This is a terrfic multiple on its annual earnings. The Q1 fy08 revenue was $50.7 million with EPS of $0.07/share (non-GAAP net income). STEC has set its Q2 fy08 expectation at $52-54 million and said it expects to receive revenue of  $50 million from Zeus-IOPS sales in 2008. 

A analyst has suggested EPS of $0.33/share for fy 2008 and $0.84/share in 2009.

Seagate is said to have a billion dollars or so in cash and liquid securities, and its market capitalisation is $14-15 billion. It bought Maxtor for $1.9 billion in a share-based deal at the end of 2005.

One well-informed source said STEC would have to really have huge penetration with SAN OEMS and a very big lead in controller technology to be worth $810 million to Seagate.

Seagate was not immediately available for a comment.

Seagate Product Roadmap

In an interview Seagate CEO Bill Watkins said the company will introduce a 2TB drive in 2009, doubling the current 1 TB SATA capacity. This will represent its third generation of perpendicular recording technology.

The company will also introduce its first SSD in 2009 as an enterprise, performance-premium drive. It has no intentions of getting in to the consumer SSD market unless SSD prices decline to $0.10/GB.

There are no details available of the manufacturing facility producing this SSD.

^{[Chris Mellor.]}