What’s New At Seagate: The Smallest, Lightest 4TB External Hard Drive

June 23rd, 2015 by Trefis Team
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Seagate Technology (NASDAQ:STX) recently introduced the world’s first 2.5″ form factor 4TB external hard disc drive. This capacity was previously available on only either desktop hard drives or on bulkier, heavier external drives. Seagate has planned to release the product under the Samsung Hard Disk Driver banner, a division of Samsung Electronics (PINK:SSNLF) which Seagate acquired back in 2011. [1] As a result of the $1.4 billion acquisition in late 2011, Seagate now is one of the largest hard drive manufacturers in the world with a 40% market share in global hard drive unit sales. The company enjoys a near duopoly in the hard drive business with rival company Western Digital (NASDAQ:WDC). The two companies combined had a share of almost 85% in the hard drive market in 2014.

We have a $56 price estimate for Seagate’s stock, which is roughly in line with the current market price. Seagate’s stock price has fallen by about 20% since the beginning of the year.

See Our Full Analysis For Seagate’s stock

The Thinnest, Lightest 4TB External HDD in the World

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Seagate’s HDD division unveiled the P3 and M3 external hard drives in capacities ranging from 500GB to 4TB. The heaviest among the P3 and M3 drives (with 4 TB capacity) weighs as little as 236 grams (just over 8 ounces) and is less than 20 mm (0.7 inch) thick. This is about 25% lighter and 12% less voluminous than the existing 4TB Backup Plus External HDD. [2] [3] The company plans to make these drives available in late June through authorized distributors and retailers.

Both the M3 and P3 4TB external drives are built on the newly developed Spinpoint M10P 2.5” hard drive and can be connected via USB 3.0. The Spinpoint M10P has five platters of 800 GB each (a record capacity in itself) most-likely manufactured on the architecture of shingled magnetic recording (SMR) drives. [4] 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. Seagate started shipping SMR discs in capacities ranging from 5TB to 8TB in late December for prices as low as 3 cents per usable gigabyte. [5]

In its most recent earnings, Seagate shipped 5.1 million branded hard drives (external HDDs), which was a 14% year-over-year decline. Similarly, the consumer electronics units shipped by the company also fell by about 11% y-o-y to 4.8 million units. We currently forecast Seagate to sell over 46 million combined consumer electronics and branded hard drives through the current calendar year. Our forecast implies a modest 3% increase in unit shipments over the previous year. A positive response for higher capacity drives could further boost volumes for the company.

Presence of Competition..

Competitor Western Digital has actively released new products and upgraded its existing range of hard drives since the beginning of the year. The company announced a capacity upgrade for its My Passport range of portable drives to 3 terabytes, in addition to releasing the My Passport X hard drives for gamers earlier this month. The company also launched the Re+ range of enterprise hard drives which deliver high performance and consume extremely low power this year. Western Digital also unveiled its My Cloud network attached storage (NAS) drives in two-bay and four-bay versions in February this year. (See: Western Digital’s New Releases And Product Upgrades Target Enterprise And Consumer Segments)

..And Impact On Margins

Seagate’s consolidated gross margin (GAAP) in the most recent quarter improved by over 50 basis points over the prior year period at 28.7%, which was within the company’s targeted long-term margin range of 27-32%. According to our estimates, the company’s adjusted non-GAAP gross margin stood at 33.7% for the quarter, which was about 50 basis points higher than the comparable year-ago quarter. The company expects to work on improving its supply chain efficiency and managing operations better in the coming quarters, which could contribute to healthier margins. The M3 and P3 external drives are categorized in the consumer electronics and branded storage segment, which typically have higher margins for Seagate. A larger mix of high-end retail products sold by the company could help improve margins through the coming years. Management mentioned that margins could expand by about 50-70 basis points through the calendar year 2015.

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Notes:
  1. Seagate Completes Acquisition of Samsung’s Hard Disk Drive Business, Seagate Press Release, December 2011 [↩]
  2. Backup Plus Product Specification, Seagate, June 2015 [↩]
  3. Samsung P3 Product Specification, Seagate, June 2015 [↩]
  4. Seagate unveils world’s first 2.5-inch 4TB HDD with 800GB platters, Kit Guru, June 2015 [↩]
  5. Seagate’s first shingled hard drives now shipping: 8TB for just $260, Extreme Tech, December 2014 [↩]