During its Q2 2017 earning call, Seagate disclosed that it already has 12TB HDDs in the field and 14TB and 16TB models in the design phase. The developments appear to provide a path toward its goal of producing 20TB HDDs by 2020.
Seagate's well-publicized difficulties have been growing as more customers transition from its bread-and-butter consumer HDDs, which account for 24% of its revenue, to speedier SSDs. The enterprise is also moving en masse to speedy SSDs for high-performance workloads, which recently led the company to halt further development of 15K HDDs. Many analysts opine that 10K HDDs are next on the chopping block.
In response, Seagate shifted its production might to more lucrative high-capacity enterprise HDDs, which now account for 37% of its revenue, to leverage the shrinking HDD price-per-GB advantage over SSDs. Seagate recently closed its Suzhou, China manufacturing plant to reduce manufacturing costs, but it simultaneously increased its investments in other facilities to address the challenges of moving from six platters per drive to eight. The net effects of its maneuverings total $300 million in savings per year.
Seagate is essentially retreating into the high-capacity segment, and the company announced that its new 12TB HDDs have already been shipping to key customers for several quarters. Seagate CEO Steve Luczoalso noted that the company would offer 16TB drives within the next 12 to 18 months. Seagate's new high-capacity offerings are destined for data centers, NAS, DVRs, and a booming surveillance market.
Seagate adopted helium technology several years after WD/HGST led the charge, and as a result, it continues to lose share in its target high-capacity market. To make matters worse, Seagate has also failed to capitalize on the SSD revolution--its strategic alliance with Micron failed to nudge Seagate's share above a paltry 0.1% of the SSD market.
Sk hynix has confirmed that it is considering a joint venture with Seagate, which might help the struggling giant penetrate the SSD market. Seagate certainly has the money to invest in the Sk hynix venture, as it has over $1.7 billion in cash or equivalents. However, a joint venture pales in comparison to WD's instant success when it gobbled up a large portion of the SSD market overnight with its SanDisk acquisition.
From a financial perspective, Seagate's earnings are encouraging with revenue of $2.9 billion and $297 million of profit during the second quarter, but its slow transition to flash-based solutions may prove to be the long-term fly in the ointment.
