Seagate’s Enterprise Storage: Helium-Filled Drives, New Technology To Drive Future Growth

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Seagate Technology (NASDAQ:STX) has witnessed limited growth in enterprise-grade hard drive shipments over the last few years, which is partially attributable to the increasing mix of solid state drives (SSD) in use. The hard drive manufacturer reported a modest 5% annual growth in unit shipments from 27 million units sold in 2010 to 33 million in calendar year 2014. Comparatively, the enterprise SSD market has surged in the same period. According to Storage Newsletter, the enterprise SSD market is expected to reach $4 billion in revenues by 2016, nearly six times where it was in 2011, while unit shipments are expected to increase by ten times during that period. [1]

Since the beginning of Seagate’s fiscal 2016 in July, the company has actively announced a revamped product portfolio with emphasis on the enterprise and cloud storage division. Below we take a look at the company’s intention to add Helium-filled drives to its portfolio and to introduce new products in the coming years.

We have a $56 price estimate for Seagate’s stock, which is about 15% higher than the current market price. Seagate’s stock price has fallen by over 25% since the beginning of the year.

See Our Full Analysis For Seagate’s stock

Seagate Turns To Helium Drives

Regular hard disk drives have spinning disks inside them that rotate at very high speeds (over 7000RPM for enterprise-grade hard drives) during the course of their usage. The air inside the disks creates turbulence, causing a lot of heat to be generated. Helium drives address this issue due to low turbulence inside the disks. As the name suggests, these drives are sealed with Helium gas instead of regular air. Helium, being seven times lighter than air, doesn’t cause as much friction. This allows the rotating discs to go up to 10,000 RPM without overheating. As a result, these drives provide high input-output per second without losing efficiency, which is generally caused due to overheating. Moreover, with considerably reduced turbulence inside the drive, the rotating disks can be packed closer by up to 50%. This leads to a higher storage capacity than a regular disk drive of the same size.

Western Digital announced the launch of its Helium-filled drives in late 2013 as a cost effective alternative to solid-state drives targeted for ultra-dense computing environments. Western Digital-owned-HGST built the Ultrastar He6 on the regular 3.5-inch form factor, but with a storage capacity of 6TB compared to the standard capacity of 4TB to highlight the space effectiveness in the drives. Hitachi’s press release indicated that Helium drives can be submersed in water because they are sealed to trap Helium inside. [2] This reduces the cooling costs even further since big data centers can simply use water for cooling the storage drives without having to use expensive cooling techniques.

At the time, Seagate’s management mentioned that the company had already been working on Helium-filled drives but questioned their viability. [3] A key challenge in developing these drives was hermetically sealing the Helium gas inside the drives and preventing any kind of leakages, due to which Seagate was more focused on other technology at the time. New technology that the company prioritized included shingled magnetic recording (SMR), heat-assisted magnetic recording (HAMR) drives and the Kinetic Open Storage platform. In a new development, Seagate announced that the company was working towards unveiling its Helium-filled drives and was just months away from shipping these drives. [4]

Where Seagate Stands On Its Next-Gen Enterprise Storage Portfolio

  • Shingled Magnetic Recording

Shingled Magnetic Recording (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. 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. [5] Subsequently, Seagate launched SMR drives in late 2014 in capacities ranging from 5TB to 8TB. [6] More recently, the company recently announced the launch of 8TB enterprise-grade hard drives for network-attached storage and Kinetic storage platform to complement the existing drives that use SMR technology. [7]

  • Heat-Assisted Magnetic Recording

Seagate has worked on its laser-assisted hard disk drive or heat-assisted magnetic recording (HAMR) drives. These drives have a relatively higher areal density of storage compared to traditional hard drives. HAMR drives can store up to 5TB/square inch, which is about 5 times higher than regular drives. [5] Last month, Seagate announced that hard drive prototypes with HAMR technology are likely to be launched by late 2016 in a capacity of 4TB. However, this has been a let down for a lot of technology enthusiasts who were expecting a higher capacity. Moreover, with the testing phase likely to continue for about a year, these drives are unlikely to be generally available in the market before 2018. [8]

  • Two-Dimensional Magnetic Recording

A key problem area with increasing storage density is that the read/write head on the disks faces interference from adjacent tracks if they are too close to each other. This makes it impossible to increase storage density beyond a point. However, Seagate revealed its plans to address this issue in the long run by adding multiple disk read heads (two to begin with), thereby allowing for narrower tracks in disk platters. [9] As a result, two-dimensional magnetic recording (TDMR) drives that utilize more than one read head could feature more prominently in future hard drives. TDMR drives could be generally available from 2016 onwards. [10]

  • Bit-Patterned Media (BPM) Technology

Bit-Patterned Media (BPM) is a new hard disk drive technology that records data in magnetic islands (one bit per island), which is different from the current technology where each bit of data is stored in multiple magnetic grains within a continuous magnetic film. Seagate is testing its BPM technology at the moment, and these drives are unlikely to hit the markets before 2018. [10]

  • Flash Arrays

Seagate announced the acquisition of storage array and storage software provider Dot Hill Systems for $645 million in an all-cash transaction last month. Dot Hill Storage is a provider of storage arrays and virtualization software solutions for a vast array of customers ranging from small and medium businesses (SMBs) to enterprise OEMs. The acquisition is likely to be completed by the end of the year, and its results will be accretive to Seagate’s earnings in the latter half of the company’s fiscal 2016 ended June. Starting from early 2016, Seagate can position itself to compete with storage systems vendors such as EMC (NYSE:EMC), NetApp (NASDAQ:NTAP), rival Western Digital (NASDAQ:WDC), computing giant IBM (NYSE:IBM) and a number of small vendors including Pure Storage, Violin Memory, SolidFire, Kaminaro and Nimbus Data. According to IDC, the hybrid flash array market stood at about $10 billion in 2014, which is expected to become a $14 billion market through 2018. [11] [12]

Seagate’s enterprise storage division has posted solid numbers in 2015 thus far. Enterprise HDD unit shipments have risen by almost 15% year-over-year to 17.3 million units through the first two quarters of calendar year 2015. We currently forecast Seagate’s enterprise storage unit shipments to rise from 33 million in 2014 to over 60 million by the end of our forecast period. If the unit shipments increase more our current forecast to over 65 million by the end of our forecast period, it could imply a 7-8% upside to our current price estimate for Seagate’s stock.

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Notes:
  1. Enterprise SSDs to Grow Over 10x by 2016, Storage Newsletter, November 2012 []
  2. HGST Ships 6TB Ultrastar® He6 Helium-filled Drives for High-density, Massive Scale-out Data Center Environments, HGST Press Release, November 2013 []
  3. Seagate Doubt’s Viability Of Helium-Filled Drives, XBit Labs, December 2012 []
  4. Damn well knew it! Seagate has helium drives in its labs, The Register, September 2015 []
  5. Seagate To Produce 5TB Hard Disk, Computer World, September 2013 [] []
  6. Seagate’s first shingled hard drives now shipping: 8TB for just $260, Extreme Tech, December 2014 []
  7. Seagate Announces a Trio of 8TB Drives for Enterprise Applications, Anand Tech, September 2015 []
  8. Muted HAMR blow from Seagate: damp squib drive coming in 2016, The Register, August 2015 []
  9. Seagate’s triple-headed Cerberus could Save the Disk World, The Register, September 2014 []
  10. Seagate promises to HAMR us all with spinning rust next year, The Register, September 2015 [] []
  11. Flash-Based Array Market Proving to Be More Than Just a Flash in the Pan as Market Soars Past $11 Billion in 2014, IDC Press Release, January 2015 []
  12. The Flash Based Array Market, Storage Networking Industry Association, April 2015 []
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