Seagate’s Baidu Deal Could Help With Cost-Effective Cold Data Storage

Storage giant Seagate Technology (NASDAQ:STX) recently announced a strategic cooperation agreement with leading Chinese web services provider Baidu (NASDAQ:BIDU), in the Big Data analysis and online storage domain. Under the conditions of the agreement, Baidu will prioritize purchasing Seagate’s enterprise-grade storage products for its future storage requirement for servers and data centers. ^[1] The Baidu-Seagate agreement involves joint research in upcoming storage domains such as Big Data analysis, Shingled Magnetic Recording (SMR) and cold storage. Seagate also mentioned the need for low-cost online storage as one of Baidu’s primary requirements.

We have a $52 price estimate for Seagate’s stock, which is about 10% lower than the current market price.

See Our Full Analysis For Seagate’s stock

Baidu

Touted as the Google (NASDAQ:GOOG) of China, Baidu is the largest Chinese language Internet search provider. The company dominates the search advertising market in China with a market share of around 80%. As a result, Baidu servers handle data and traffic from billions of user requests on a daily basis. The company stores data, including webpage history, images, video and documents in its storage facilities. Baidu had capital expenditures of more than $450 million in 2013, with most of the expenses used to purchase servers, network equipment, computer hardware and new buildings for data centers and offices. More recently, the company started building a new cloud computing center in Shanxi, China with expected capital costs of over $50 million. ^[2]

Seagate’s Shingled Disks For Cold Storage

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. ^[3]

The latency, or access time to read data, is 0.065-0.085 milliseconds for SSDs, while it is about 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. ^[4] Many historical data logs, browsing histories and backups are also categorized under cold storage. Assuming SMR disks have a similar read time as traditional hard disks, it is still an acceptable level of latency for these non-critical processes.

A successful implementation following the agreement with Baidu could signal a wider shift towards the adoption of Seagate’s shingled magnetic recording disks. Accordingly, Seagate’s client companies (Baidu in this case) do not have an imminent need to invest in SSDs for cold data storage. ^[5] The introduction of cheaper cloud storage alternates to SSDs such as Seagate’s SMR disks, Kinetic Open Storage Platform or Western Digital’s (NASDAQ: WDC) helium-filled drives could cut infrastructure costs by up to 50%. These cheap alternatives to SSDs could lead to a steep decline in the price per GB of SSDs in the long run. We currently forecast Seagate’s enterprise storage unit shipments to increase from nearly 32 million in 2013 to about 56 million by the end of our forecast period.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Seagate And Baidu Sign Strategic Cooperation Agreement, Seagate Press Release, September 2014 [↩]
2. Baidu 20-F for 2013, SEC, March 2014 [↩]
3. Seagate to produce 5TB hard drive next year, 20TB by 2020, Computer Weekly, September 2013 [↩]
4. Cold Data Storage: An Answer To The IT Budget Meltdown?, Wall Street And Tech, September 2013 [↩]
5. Seagate disrupts cloud economics with storage that can cut infrastructure costs by 50%, Venture Beat, October 2013 [↩]