Seagate (NASDAQ:STX) and its major competitor, Western Digital Corporation (NASDAQ:WDC), are the two the dominant hard disk drive (HDD) manufacturers in an industry that has consolidated dramatically over the past two decades. The increasing demand for efficient big data storage in the last few years has seen the industry shift its focus towards developing non-conventional drives such as solid-state drives (SSD) and hybrid drives. With SSD prices hovering around $1 per gigabyte (GB), compared to 5-8 cents per GB for traditional HDDs, both Western Digital and Seagate have had to come up with cheaper alternatives to SSD. 
WDC recently announced the launch of its Helium-filled drives as a cost effective alternative to solid-state drives targeted for ultra-dense computing environments. However, Seagate’s management has questioned the viability of Helium-filled drives and has worked on developing a different technology.  Seagate’s approach to moving away from traditional HDDs is to develop shingled magnetic recording (SMR) drives and the Kinetic Open Storage platform, both of which will be launched in 2014.
We take a look at these new technologies hitting the markets next year and how they will affect the key growth drivers for Seagate’s Enterprise and cloud business segments.
Shingled Magnetic Recording
As the name suggests, SMR discs are internally designed somewhat resembling roof shingles, as the data tracks inside the drive partially overlap each other and are thinner than those in typical hard disks. This particular arrangement of tracks allows a 25% capacity gain in the drive since more data can be written on closely packed tracks. A typical 4 terabyte (TB) drive with a 3.5-inch form factor has a memory storage density, or areal density of 1TB per disk. On the other hand, SMR can provide a memory storage density of 1.25TB per disk. According to an IDC estimate, memory storage density for the industry is growing by <20% per year while data storage requirements are growing at >30% annually. Shingled magnetic recording technology could be a cost-effective way to address this. 
The latency, or access time to read data, is 0.065-0.085 milliseconds for SSDs, while it is ~6 milliseconds for traditional HDDs.  While this could be an appreciable difference for critical business processes, this is not really a point of concern for accessing “cold data.” Cold data is data which is not accessed or rewritten very often – for example, a saved photo or video from a user on a social media website isn’t accessed very frequently and is hardly ever rewritten. Accessing that data is not considered to be a critical process by storage companies. Assuming SMR disks have a similar read time as traditional hard disks, it is still an acceptable level of latency for non-critical processes. Accordingly, storage companies do not have a glaring need to invest in SSDs for cold data storage.  The growing storage requirements for cold data could potentially be addressed by SMR disks.
Kinetic Open Storage Platform
Seagate recently introduced its Kinetic Open Storage platform, targeting the cloud storage segment. This platform drastically changes the entire storage architecture. Each hard disk on the platform is connected via an Ethernet port and can be accessed across the Internet. This eliminates the requirement of a complex multilevel architecture and storage servers. The less complex architecture also ensures ease of maintenance and low power consumption, contributing to an estimated 50% reduction in total costs.  With the price per unit of enterprise storage on the rise, a drop in storage infrastructure costs due to the introduction of Kinetic Open Storage could significantly benefit Seagate.
To achieve the high performance needed with cloud storage, we expect the Kinetic Open Storage platform to become popular in the future. There could be an upside to our $52 price estimate with a successful launch of the platform.Notes:
- SSDs To Compliment Not Replace HDDs [↩]
- Seagate Doubt’s Viability Of Helium-Filled Drives [↩]
- Seagate To Produce 5TB Hard Disk [↩]
- HP Product Bulletin [↩]
- Cold Data Storage: An Answer To IT Budget Meltdown [↩]
- Seagate Disrupts Cloud Economics with storage that can cut infrastructure costs by 50%, VentureBeat [↩]