Seagate’s Shrewd SandForce Acquisition

Seagate takes another step towards becoming a major player in flash.

May 29, 2014 at 10:00PM

When Avago (NASDAQ:AVGO) purchased LSI a while back, it got with it a robust storage semiconductor business, as well as a networking chip business that seemed poised to grow. As part of that storage semiconductor business, Avago got its hands on a company that LSI had acquired just a few years ago called SandForce. SandForce was an up-and-coming vendor of solid-state drive-storage controllers, and helped the company stay competitive with Marvell (NASDAQ:MRVL), as well as the in-house controller efforts at the various flash vendors.

However, news broke today that Seagate (NASDAQ:STX), one of the two major players left in the hard disk drive business, would be buying SandForce from Avago for a cool $450 million in cash. Seagate, like rival Western Digital (NASDAQ:WDC), has been on a bit of a shopping spree with respect to any and all flash-related technologies. While hard disk drives will continue to be a veritable cash cow, neither Seagate nor Western Digital wants to be left out of the continued growth of flash.

This is a good acquisition
LSI picked up SandForce for $370 million back in 2011. Back then, SandForce's controllers were continuing to gain traction, but were still relatively immature relative to some of the offerings from competitor Marvell, as well as some of the in-house solutions from the likes of Samsung (NASDAQOTH: SSNLF). Under LSI, SandForce likely had more financial room to breathe and, as a result, could be more competitive in the longer run.

With this acquisition, Seagate gets a strong flash controller vendor, which will allow it to be a major player in both consumer and enterprise solid-state drive solutions. While Seagate is at a cost-structure disadvantage relative to a company that builds its own NAND (think Micron (NASDAQ: MU), Samsung, and Toshiba) because flash is easily the biggest part of the bill of materials, this is really only a hindrance in commodity-drive markets. In higher-end consumer and, more importantly, enterprise, the software and the controller are the key points of differentiation.

Welcome to the club, Seagate
With Toshiba having picked up the remains of OCZ, which had a pretty credible in-house controller effort, and with Western Digital having picked up STEC, it's only natural that Seagate joins the party by picking up some world-class solid-state controller IP. Indeed, with the substantial cash flows that both hard disk drive vendors generate from this duopoly, it would be foolhardy for either to not be aggressive in picking up relevant flash assets.

Impact on Marvell?
One more angle is worth exploring, and may be expanded upon in a future article -- the impact on Marvell. Marvell is a leading vendor of hard disk drive controllers and has reported excellent growth from its solid-state drive controller business. The company estimates that it has roughly 50% of the controller market for such drives, and has indicated that the near-term demand outlook for this business is good.

The longer-term question, however, is whether the merchant solutions that Marvell provides will ultimately be displaced by in-house solutions, or if the merchant model will ultimately prevail. The smaller, commodity SSD players (Corsair, Kingston, PNY, etc.) are unlikely to bring controllers in-house -- even Intel (NASDAQ: INTC) uses merchant controllers for its consumer products -- so that market is probably nice and wide open to Marvell. The drives that come from Seagate, Samsung, and others, on the other hand, will probably use in-house silicon. Time will tell how the market share dynamic between all of these players plays out.

Foolish bottom line
Seagate is using its enormous cash flow from hard disk drives to buy technology and assets that it needs to thrive longer term. Hard disk drives aren't going away -- in fact, they'll probably continue to generate robust levels of cash for years to come; but in order to drive growth, both Seagate and Western Digital need flash strategies. It seems with their recent acquisition sprees, both Seagate and Western Digital are well positioned going forward.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Western Digital.. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers