In late 2013, Avago Technologies (NASDAQ:AVGO) announced it planned to acquire LSI Corp. for a whopping $6.6 billion. LSI designed, among other things, controllers for hard-disk drives and solid-state drives (via its acquisition of SandForce).

About six months later, though, Avago sold LSI's accelerated solutions and flash components divisions to hard-disk drive giant Seagate (NASDAQ:STX). This, according to AnandTech, meant that Avago jettisoned LSI's flash accelerator business and its solid-state drive controller business.

Given that hard-disk drives are generally considered "older" technology in the world of storage, and solid-state drives represent the "new" and "exciting" technology, it might initially seem Avago got it backward.

But it didn't. Here's why.

The solid-state drive market is fiercely competitive; not so much with hard-disk drives
The hard-disk drive industry has three major players: Seagate, Western Digital (NASDAQ:WDC), and, to a lesser extent, Toshiba. Supplying these three players with controllers for those drives are Marvell (NASDAQ:MRVL) and Avago (via its purchase of LSI).

The market for hard-disk drives might not be booming -- according to Yahoo! Finance, both Seagate and Western Digital are expected to register modest revenue declines in the coming fiscal year -- but it's large and relatively stable. And, for drive vendors and controller vendors alike, there's not much competition.

This is in sharp contrast to the solid-state drive market.

In solid-state drives, a number of vendors manufacture NAND flash, including the Intel (NASDAQ:INTC) and Micron (NASDAQ:MU) joint venture, the Toshiba and SanDisk (UNKNOWN:SNDK.DL) joint venture, Samsung Electronics, and Hynix.

All of these companies develop and market solid-state drives, and they also sell NAND flash to companies that then build their own solid-state drives. Four of the six vendors above (Intel, Samsung, Toshiba, and Hynix) develop their own solid-state drive controllers. Micron and SanDisk generally source controllers from the merchant vendors.

This vertical integration isn't the only factor that makes the merchant solid-state drive controller market so tough. Several merchant vendors, including JMicron, Marvell, and Silicon Motion (NASDAQ:SIMO), are all vying for the noncaptive solid-state drive controller business.

Finally, speaking of "captive demand," Apple's new MacBook came packed with an Apple-designed flash controller (widely believed to be the product of its 2012 acquisition of Anobit). I suspect Apple's plan is to transition completely to in-house flash controllers, further narrowing the proportion of the market a merchant controller vendor can ultimately target.

Avago seemingly made the right choice
I would say Avago ultimately made the right choice to jettison the LSI SandForce business. Competition within the merchant market for flash/solid-state drive controllers is fierce, and the opportunities for merchant controller vendors as a proportion of the total solid-state drive market don't seem to be getting any larger. The hard-disk drive controller business is much more attractive.