Seagate Technology May Be the First, But Western Digital Is Still the Best

Seagate Technologies stock has rallied recently behind news of it launching the first 8TB drive, but despite this news, it might not have an advantage against Western Digital.

Sep 3, 2014 at 11:00AM

In a race to cater to enterprise clients with large storage needs, many have anticipated the launch of an eight terabyte, or TB, hard drive, or HDD as the start of a new era with larger drives. Western Digital (NASDAQ:WDC) and Seagate Technology (NASDAQ:STX) control the majority of the HDD market, about 85%, and were considered favorites to produce a drive that could store eight TB. Well, Seagate has officially won the race to be first, and while the company and its investors consider this a win, it's still very likely that Western Digital will be preferred by the customers that Seagate is targeting.

What's so special about eight TB?
HDDs are widespread and relevant in the life of all businesses, and consumers. It is storage hardware, most notably used with PCs, laptops, DVRs, and home entertainment centers. However, due to the rise of smartphones and tablets, giving birth to solid state drives, HDD makers like Seagate and Western Digital have had to innovate, and today HDDs are used often with the cloud. While consumers might assume that all of their documents and songs are saved in air that data must still be backed up.

This is where enterprise HDD use comes into play with big Web technology companies like Facebook, Google, and Twitter, which have lots of data and need large amounts of storage. In the past, six TB was the peak, but this past Tuesday Seagate shipped its very first eight TB hard drive aimed specifically at cloud content, not yet available for consumers.

According to PCWorld, the average two-hour movie on iTunes requires about five gigabytes of storage, meaning an eight TB drive could store about 1,600 movies. While large enterprise data centers are storing far more than 1,600 movies, eight TB drives can lower the quantity of drives that are necessary with these large data centers.

Does eight TB give Seagate the advantage?
While bigger may appear to be better for HDD manufacturers, Western Digital and Seagate have thrived to control a combined 85% of the market by offering options. For example, both companies have a six TB option, but aside from the new eight TB, Seagate also has a 1.5, three, and four TB drives while Western Digital sells one and three.

Essentially, Western Digital's only evident advantage is having the lowest storage option, which might lead some to think Seagate is in control of this business. However, the truth is to the contrary.

For example, the chart below shows very telling statistics: HDD market share for both companies over the last two years. As seen, in January of last year the two companies were neck-and-neck, but over the last 16 months Western Digital's market share has grown rather significantly.

Date

Western Digital 

Seagate Technology 

January 2013

43.6%

43%

July 2013

44.3%

41%

January 2014

44.4%

40%

July 2014

45.7%

39%

However, it should be noted that most acquisitions for both companies have come in SDDs or hybrid drives during the last 16 months, meaning the chart above is a relatively good illustration of which manufacturer  customers have preferred. As seen, Western Digital's market share has consistently increased. Meanwhile, Seagate, a company with more options, has seen its share decline.

While there are likely many reasons for this trend, a  Blackblaze study earlier this year might explain the biggest reason. In a study of 12,765 Seagate drives, nearly 14% and 10% of 1.5 TB and three TB drives, respectively, had an annual failure, meaning it had to be replaced within one year. Meanwhile, Blackblaze also tested 2,581 Western Digital drives, and both its one TB and three TB drives had annual failure rates below 4%. Notably, Seagate's four TB drive was on par with Western Digital's performance.

With that said, Blackblaze observed a meaningful disconnect between the failure rates of these two brands, using a large quantity of drives during its study. Not to mention, the average Seagate drive tested was 1.4 years old, more than a year younger than Western Digital's average, which should have meant that Seagate's performance would be superior. Yet, Western Digital was proved better over a 12-month span, and when Blackblaze looked beyond one year and to 36 months, the results were not much better for Seagate.

Foolish thoughts
Particularly, over a 36-month span, only 73.5% of Seagate drives were still alive and working efficiently. Meanwhile, 94.8% and 96.9% of Western Digital and Hitachi drives, respectively, were still operational. This combined data from Blackblaze might tell why Western Digital has rapidly gained market share, and why Seagate has lost share at an even faster clip than Western Digital has gained it.

With all things considered, Seagate may have been the first to ship an eight TB drive, nearly 35% more storage capacity than the six TB, but given these trends, it's hard to imagine that eight TB will be a game changer for the company. Moreover, large enterprise customers might find less storage but more reliability as preferable when storing their data. In other words, the trend and data speak for themsevles, and until Seagate can correct these key problems, it's hard to call an eight TB drive a game-changer for Seagate versus its peer Western Digital.

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Brian Nichols owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Apple, Facebook, Google (A shares), Google (C shares), Twitter, 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.

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