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Current Overview

On September 9, 2013, Western Digital (WD), under its wholly-owned subsidiary HGST (that Western Digital acquired in 2011) announced its definitive merger agreement with Virident, a provider of server-side flash storage solutions. The transaction is worth $685M in cash, representing roughly a 6X return on capital from the investments Virident has attracted since

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its founding in 2006.

This is the fifth investment that WD has made since 2009 – SiliconSystems in 2009, HGST in 2011, sTec in 2012, Velobit earlier in 2013, and now Virident. These companies represent a diverse set of investments from SSD wear leveling technologies and SMART monitoring tools to SSD caching software to complete solid state disk drive and PCI based vendors.

Since 2009, WD has spent in excess of $5.89B in acquisitions ((The Velobit acquisition price was never disclosed.))

Neuraspective™

The question here is what does WD’s arch-nemesis, Seagate do now? With the acquisition of Virident, WD probably generated a couple of hundred million dollars in return to Seagate since Seagate made a $40M investment in Virident, and currently an OEM of Virident.

Coopetition in the data storage industry is commonplace, and this acquisition by WD may not necessarily see an immediate termination in Seagate’s partnership with Virident. But it does put into question what will Seagate do? Seagate has made very few acquisitions, and none in the enterprise solid state space. On the other hand, apart from WD, SanDisk (best known for its consumer flash products) have made several enterprise solid state acquisitions including Pliant, FlashSoft and SMART Storage Systems totaling over $634M in enterprise solids state investments since 2011 ((SanDisk did not disclose the terms of FlashSoft.)).

The problem for Seagate is that the number of solid state components (SSDs, PCI-based solid state, networked memory based caching solutions) left for acquisition. The market is consolidating very quickly.

Neuralytix believes that WD is now well positioned to deliver solutions from SSDs within a storage systems to networked server based solid state solutions used to accelerate one or more applications. With the acquisition of Virident, WD also gains new opportunities at other major OEM partners who may have favored Seagate over WD in the past for HDDs.

While the HDD market is dominated by WD and Seagate, the solid state market looks very different, with Micron, SanDisk, WD and Intel being major players in this market.

Neuralytix anticipates further consolidation of the enterprise solid state market through to the end of calendar 2014. During this time, each of the acquirers will need to establish a strong portfolio of solutions (and not just products) and focus on positioning themselves in the ever overlapping worlds of consumer and enterprise flash.

While in the short term, this acquisition is definitely a winner for Virident investors, in the long run, WD may just be the vendor with an even bigger and sustainable return from its investment.

 

 

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