Dichotomy Capital • 11 Comments
Dec. 16, 2015, 2:49 PM
- EVault provides cloud backup/recovery appliances and software to SMBs and small enterprises, as well as cloud-based disaster recovery services. Seagate (STX +0.8%) is selling the business to cloud backup/recovery service provider Carbonite (NASDAQ:CARB) for $14M in cash. The deal is expected to close in Q1.
- Carbonite: "Together with Carbonite's highly successful line of data protection and recovery products for small businesses and individuals, the company will now provide a full suite of solutions that are cost-effective, easy to use and meet the needs of all SMB ... EVault's proven technology ... enables us to round out our portfolio and immediately provide the features and functionality larger businesses require to support their complex environments."
- Carbonite has rallied following the news. Shares closed yesterday just $0.68 above a 52-week low of $8.40.
Oct. 21, 2015, 9:32 AM
- Along with announcing a $19B deal to acquire SanDisk (SNDK +4.1%), Western Digital (WDC -2%) says it expects to report FQ1 revenue of $3.4B and EPS of $1.56 vs. a consensus of $3.28B and $1.56. Gross margin fell 90 bps Q/Q to 28.9%. With Seagate (STX -0.5%) having warned last week, the revenue outlook appears to confirm analyst suspicions Western gained enterprise hard drive share.
- Of Western's proposed $86.50/share payout to SanDisk, $85.10/share is in cash. The cash portion of the $86.50/share payout drops to $67.50/share if a planned investment in Western by Tsinghua Unigroup subsidiary Unisplendour (for a 15% stake) hasn't closed or is terminated.
- To help finance the deal, Western plans to obtain a whopping $18.4B worth of new debt facilities. It expects to continue paying its dividend, but will suspend its buyback program.
- Cost synergies are expected to reach a $500M/year run rate within 18 months; the deal is expected to be accretive to EPS within 12 months of closing (not surprising given it's mostly in cash). SanDisk's NAND flash manufacturing JV with Toshiba will be maintained.
- By acquiring SanDisk's NAND chip, controller, and SSD IP, and by gaining the ability to source NAND at cost, Western effectively neutralizes the cannibalization threat posed by SSDs/flash storage to its hard drive ops. For now, Seagate continues to rely on 3rd-party flash manufacturers; an alliance with Micron was formed in February.
- SanDisk is trading roughly 10% below Western's offer price.
Oct. 19, 2015, 9:18 AM
- More than three years after Western Digital (NASDAQ:WDC) closed its acquisition of Hitachi's hard drive unit (HGST), China's Ministry of Commerce has approved integrating the business with Western Digital proper.
- The company will continue selling products under both the HGST and Western Digital brands, and maintain separate sales teams for two years. However, it plans to start integrating "corporate and other key functions, including [R&D], heads and media operations, engineering and manufacturing."
- HGST president Mike Cordano has been appointed to the newly-created position of COO. Western president Jim Murphy will now run the company's storage devices unit.
- Western is up 3.6% premarket. Archrival Seagate (NASDAQ:STX), hit hard last week by an FQ1 warning that some analysts argued indicates enterprise share loss to Western, is down 1.2%.
- Update (10:39AM ET): Western has given back its early gains. Seagate is down 2%.
Oct. 6, 2015, 9:56 AM
- Seagate's (NASDAQ:STX) $9.75/share ($696M) acquisition of storage array/software vendor Dot Hill Systems (HILL) is officially on the books. Dot Hill's shares will no longer trade on the Nasdaq.
- The deal was originally announced on Aug. 18. At the time, its price represented an 88% premium to Dot Hill's most recent closing price. Seagate forecast the deal would be accretive to FY16 (ends June '16) EPS.
Aug. 18, 2015, 7:21 PM
- Seagate (NASDAQ:STX) is buying Dot Hill Systems (NASDAQ:HILL), a maker of modular storage arrays and related software, for $694M in cash ($645M exc. net cash), or $9.75/share. The price represents an 88% premium to Dot Hill's Tuesday close.
- Seagate: "Dot Hill's external storage array-based systems and software products will complement and expand Seagates storage systems offerings ... Seagate will leverage Dot Hills storage technology IP portfolio and software capabilities to drive innovation ... we expect the transaction to be accretive to non-GAAP earnings in fiscal 2016."
- Various Dot Hill arrays target market segments such as SMBs, video post-production, high-performance computing (HPC), and telecom carriers. Hybrid flash/disk arrays are among the products. With Dot Hill's 2015 revenue consensus at $245.1M, Seagate is paying 2.6x forward sales.
- The deal is expected to close in calendar Q4. It follows Seagate's 2014 purchase of storage subsystem/hard drive equipment maker Xyratex, and will lead Seagate to further compete with buyers of its enterprise hard drives and SSDs.
- Dot Hill has soared to $9.65 in after hours trading.
May 29, 2014, 9:34 AM
- Seagate (STX) is expanding its flash storage lineup - generally seen as a weakness as flash encroaches on hard drives - in a big way by acquiring LSI's PCIe server flash storage module/flash controller chip unit from new LSI parent Avago (AVGO) for $450M in cash.
- Seagate, which already offers SSDs, notes the LSI unit is the #2 player in the PCIe flash market - Fusion-io (FIO +1%) is the largest - and that its offerings in the space are optimized for cloud/hyperscale deployments - Fusion-io also has a keen interest in this area. The unit's SandForce controllers have a number of SSD design wins.
- Seagate expects its enterprise SSD and controller ops to produce at least $150M in revenue in FY15 (ends June '15), albeit with an op. margin headwind of $30M-$40M. Better profitability is expected in FY16.
- The deal follows a string of flash storage acquisitions from archrival Western Digital: PCIe flash vendor Virident, SSD vendor sTec, and SSD caching software startup Velobit.
- It appears to remove one more potential suitor for Fusion-io, long the subject of M&A speculation.
Mar. 31, 2014, 4:27 PM
- Seagate's (STX) $294M purchase of hard drive equipment/storage subsystem maker Xyratex (XRTX), announced on Dec. 23, is officially on the books.
- With Xyratex's third-party hard drive equipment clients likely to start looking elsewhere, the business is expected to produce just $500M-$600M in revenue during Seagate's FY15 (ends July 3, 2015), and be neutral to EPS during the year. Xyratex had revenue of $814.3M and EPS of $0.15 during its FY13 (ended Nov. '13).
- Analysts have argued Xyratex rival Teradyne (TER) will benefit from the deal, as Western Digital/Toshiba step up their orders.
- Opinions have been mixed on whether the deal is a smart move for Seagate: Those who like it think Seagate's hard drive manufacturing ops and /R&D will benefit from further vertical integration, and see a major opportunity to sell Xyratex's ClusterStor systems to Web/cloud providers. Those who don't are worried about channel conflict with both hard drive equipment buyers and Seagate's storage OEM clients.
Dec. 23, 2013, 6:48 PM
- With Xyratex's storage subsystem business both a supplier and a rival to the storage OEMs who account for a large chunk of Seagate's (STX) enterprise hard drive sales, analysts note Seagate's pending acquisition of Xyratex brings both cross-selling opportunities and channel conflict risks.
- BMO suspects Seagate hopes to use Xyratex (presumably via its ClusterStor line) to directly supply Web/cloud providers, but also notes Seagate "will now compete against a set of customers." The Register's Chris Mellor: "Western Digital (WDC) and Toshiba ... should pick up some extra [hard drive] business from OEMs displeased by Seagate competing with its own channel."
- Piper, however, likes how Xyratex's hard drive equipment unit could lower Seagate's hard drive testing times and capex. It also observes Xyratex claims IBM, H-P, NetApp, and Dell as clients, even if it competes with them to an extent.
- Wells Fargo likes the deal, but also thinks Seagate may still need to make some flash storage acquisitions. Western Digital has been more aggressive here, snapping up server flash module vendor Virident and module/SSD supplier sTec.
- Deutsche, meanwhile, expects Teradyne's (TER) hard drive test equipment sales to get a boost as Western Digital and Toshiba stop buying test equipment from Xyratex.
Dec. 23, 2013, 9:25 AM
- Seagate (STX) is acquiring hard drive equipment/storage subsystem maker Xyratex (XRTX) for $13.25/share, or $294M if excluding $80M in cash on hand. The price represents a 27% premium to Xyratex's Friday close. (PR)
- By acquiring Xyratex, which has counted Seagate, Western Digital (WDC), and Toshiba among its clients (the latter two might now now turn to other suppliers), Seagate is vertically integrating in an effort to gain a manufacturing edge. The purchase comes shortly after Western beat Seagate to the punch in shipping helium drives (they're lighter, denser, and more power-efficient than conventional drives), a technology long promoted by Xyratex.
- The deal also increases Seagate's enterprise storage exposure. As SA Pro contributor Kingsley Park Capital has noted, Xyratex, historically focused on relatively low-end solutions, recently launched ClusterStor, a solution aimed at the growing, higher-margin HPC storage market.
- Seagate expects the purchase to contribute $500M-$600M to FY15 (ends June '15) revenue, and to be neutral to FY15 EPS. The deal is expected to close by mid-2014. Activist investor Baker Street Capital, which has a large stake in Xyratex, backs the deal.
Sep. 30, 2013, 2:37 PM
- A Bloomberg column discusses the possibility of Seagate (STX +1.3%) acquiring Fusion-io (FIO +1.9%) in response to Western Digital's acquisition of Fusion-io server flash module rival (and Seagate partner) Virident. M&A hopes, together with the steep multiples paid by Western, led Fusion-io shares to fly higher when the Virident deal was announced.
- No new information is provided in the Bloomberg column. Earlier this month, Seagate CEO Steve Luczo admitted Seagate "[needs] some technology .... on the software side" to flesh out its cloud storage offerings (many Web/cloud firms are embracing flash), but added valuations "[seem] a little frothy."
- Meanwhile, Fusion-io rival Violin Memory (VMEM +5%) is bouncing a bit after tumbling post-IPO on Friday; shares are still down 18% from their $9 IPO price.
- Violin CEO Don Basile, who was once Fusion-io's CEO, has been busy defending the company. He asserts Violin tops IDC and Gartner's rankings of flash array vendors, and that the company's proprietary flash controller ICs help it stand out (Fusion-io's module also use proprietary controllers). Regarding the wind-down of the H-P reseller deal, Basile declares the IT giant hasn't been a "meaningful" revenue contributor for seven quarters.
Sep. 9, 2013, 5:33 PM
- Craig-Hallum and FBN have upgraded Fusion-io (FIO +25.9%) in the wake of Western Digital's $685M deal to acquire Fusion-io rival Virident, arguing the odds the server flash module vendor will receive a buyout offer have risen.
- Like others, Craig-Hallum's Rajesh Ghai views Seagate (STX +1.8%), which is about to see its reseller deal with Virident unravel as the startup becomes a division of its biggest rival, is viewed as the most likely candidate to make a bid. However, he also names Samsung and Micron as potential suitors.
- FBN's Shelby Seyrafi: "WDC is paying $645 million [net of cash] for a PCIe SSD company with little revenue, while FIO had an enterprise value on Friday of $1.2 billion and had $432 million in revenue last year."
- Lazard's Edward Parker, who has been bullish on FIO for some time, says checks point to "substantial hyperscale design win activity in 2014, with Fusion-io and Virident both at the top of a short list of participants."
- Fusion-io's top two hyperscale customers, Apple and Facebook, have been paring their orders, something that definitely hasn't gone unnoticed by investors. But the company has also boasted of orders from other big tech/Internet names, such as Pandora, Salesforce, LinkedIn, and Alibaba.
- 31.6% of the float was shorted as of Aug. 15.
- Previous: Fusion-io soars in response to WDC's purchase of Virident
Sep. 9, 2013, 10:26 AM
- Virident, like Fusion-io (FIO +11.3%), offers PCI-Express-based server flash memory modules meant for performance-intensive applications. And beaten-down Fusion-io has been the subject of plenty of M&A speculation over the last two years.
- Virident asserts its FlashMAX II PCI-Express modules offer 2x the performance of rival solutions.The company also provides FlashMAX Connect, an innovative software solution for allowing FlashMAX II modules to be clustered, to mirror/replicate content, and to act as caches for 3rd-party storage.
- Western Digital (WDC -0.5%) should be able to greatly expand Virident's distribution. The purchase comes less than 3 months after WDC announced it's buying enterprise SSD vendor sTec for $207M.
- In addition to Fusion-io, Virident competes against EMC, which offers its XtremSF flash modules and other flash storage products, and private flash storage system vendors such as Nimble Storage and Violin Memory.
- Interestingly, Western Digital archrival Seagate (STX -0.8%) recently invested $40M in Virident and struck a reseller deal with the company. Though Seagate is probably getting a good return on its investment, it can't be happy to see Virident fall into WDC's arms. Will it counter by making a play for Fusion-io?
- Previous: Western Digital buying Virident for $685M
Jun. 24, 2013, 2:39 PM
Western Digital's (WDC -2%) acquisition of sTec is a "smart move," says Lazard's Edward Parker: he notes sTec's SSDs offer best-in-class endurance, which should go over well with WDC's OEM and enterprise clients, and that WDC is only paying 1.5x 2013 sales, a multiple well below that seen in peer acquisitions. RBC, however, points out sTec has been plagued by management/execution issues (a big reason for the price tag), and JPMorgan sees the deal as evidence of the long-term threat SSDs pose to hard drive sales. Will Seagate (STX -2%), which has been busy expanding its consumer and enterprise SSD lineups, respond with a purchase of its own?| Jun. 24, 2013, 2:39 PM
Jan. 22, 2013, 10:15 AM
Western Digital (WDC +4%) trades higher after announcing it recently bought Arkeia, a provider of storage backup software and VMware backup appliances for SMBs. The purchase expands WDC's enterprise lineup - the company already offers NAS servers for SMBs - and (as The Register observes) puts it in competition with Seagate's (STX +1.4%) EVault backup/recovery product line. It also helps WDC lower its PC dependence a bit at a time when doing so seems a good idea.| Jan. 22, 2013, 10:15 AM | 1 Comment
Sep. 27, 2012, 4:01 PM
A "highly reliable source close to Seagate" tells Eric Savitz Seagate (STX) isn't going to buy OCZ Technology (OCZ +2.4%). OCZ, which was up over 10% earlier today on a report from The Register suggesting a deal came close this summer, has given back most of those gains. Between The Register's report and a July BSN scoop that proved to be inaccurate, someone feeding OCZ buyout rumors might have a very active imagination. (also)| Sep. 27, 2012, 4:01 PM | 4 Comments
Sep. 27, 2012, 9:10 AMOCZ Technology (OCZ) +3.6% after The Register reports the company indeed held buyout talks with Seagate (STX) this summer, with a deal "almost done on the financial side," but that talks fell apart because OCZ CEO Ryan Peterson wanted a seat on Seagate's board. Peterson's role in the deal's collapse is said to have contributed to his resignation last week. If Seagate is interested, it might have to pay less now - OCZ plunged to new multi-year lows yesterday. | Sep. 27, 2012, 9:10 AM | 3 Comments