Enterprise SSD: Are Seagate and SanDisk Poised for Overperformance?

The enterprise SSD segment is booming. Can SanDisk, Seagate, and Western Digital benefit?

Apr 29, 2014 at 2:00PM

The growing demand for low-latency data storage solutions is driving the growth of enterprise-scale solid-state drives, or SSDs. Objective Analysis estimates that the market for enterprise SSDs will reach $3.5 billion by 2016 -- a terrific annual growth rate of 59%. Plus, enterprise SSDs are expected to command a 33% market share by 2016, up from 10% in 2012. 

In light of this expected growth, which of the industry giants -- Seagate (NASDAQ:STX), SanDisk (NASDAQ:SNDK), and Western Digital (NYSE:WD) -- stands to benefit the most?

A diversified giant
Seagate is a long-standing leader in the enterprise data storage industry. The company manufactures conventional hard disks, hybrid drives, and flash-based volatile and non-volatile memory modules for retail and enterprise clients, making it a formidable competitor in the memory segment.

Regarding market position, Seagate commands a gigantic 48% share in the enterprise data storage industry -- including HDD and SSD segments. Plus, the company generates about 39% of its overall gross profit from its enterprise division. Needless to say, Seagate has a solid foothold in the enterprise segment. 

To further strengthen its market position, Seagate plans to unveil its 3D NAND drives during the first half of 2014. This next-gen technology allows NAND manufacturers to breach the scaling limit, thereby allowing them to deliver cost-effective and scalable flash storage solutions for enterprise clients. 

The memory giant's entry in the 3D NAND segment, therefore, will not only future-proof its product portfolio, but also extend its lead over competitors. Plus, the 3D NAND industry in itself is a booming industry and is expected to grow 180.7% between 2013-2018. This positions Seagate as one of the prime beneficiaries of the thriving enterprise SSD segment. 

A flash pure-play
SanDisk, a pioneer in flash memory, is another notable beneficiary. The pure-play flash memory giant derives about 28% of its revenue from sales of its solid-state drives -- including retail and enterprise drives -- and commands a 16.7% share in the SSD industry.  

SanDisk upgraded its FlashSoft software in its previous quarter. At a price of nearly $130,000 for a three-year license, FlashSoft allows solid-state drives to be used as caching devices for VMware's virtualization software. This upgrade, in turn, increased the demand for SanDisk's SSDs and contributed to its stellar financial growth. 

On a year-over-year basis, SanDisk posted an impressive 61% jump in its quarterly SSD revenue. Its key growth driver, the enterprise SSD segment, recorded spectacular quarterly revenue growth of about 100% over the same period. 

In addition, SanDisk also unveiled its ULLtraDIMM SSDs earlier this year. Reportedly, these drives deliver about 800 times faster write latency than conventional hard drives. Currently, the market for such speedy drives is limited, but management expects ULLtraDIMM disks to become a key growth driver by 2015. 

With FlashSoft software driving its SSD sales, ULLtraDIMM disks future-proofing its product portfolio, and the development of its next-gen 3D NAND technology already under way, SanDisk seems well-positioned to take the enterprise SSD market by storm.

An uninterested peer
Unlike its peers, however, Western Digital isn't showing much interest in the enterprise SSD segment. Its product portfolio includes conventional hard drives, solid-state hybrid drives, and its latest, helium-filled enterprise storage drives.

Compared to typical hard drives, Helium drives reportedly consume 23% less power, run quieter, and reach densities of up to 6 TB. But, since they are similar to conventional hard drives by design, their read and write latencies are much slower than a typical SSD's.

Moreover, Seagate recently unveiled its 6TB air-filled drives using 6 platters -- compared to the seven platters found in Western Digital's Helium drives. This has exhausted Western Digital's lead over Seagate, and suggests that the former needs to innovate in order to thrive. 

Wrap up
The enterprise SSD industry is booming. So, it makes sense to invest in proactive companies that are en-route to capturing this expected growth. Investors, therefore, might want to consider investing in Seagate and SanDisk to reap balanced rewards.

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Piyush Arora has no position in any stocks mentioned. The Motley Fool owns shares of Walker & Dunlop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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