Seagate Ends Private-equity Buyout Talks

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Seagate Technology has closed off talks on a potential private-equity buyout while saying the hard-disk-drive market has improved.

The maker of consumer and enterprise storage said Monday its board of directors had ended discussions with private equity firms about a possible deal to take Seagate private. "The indications of the valuation range were not in the best interest of the company and its shareholders," Seagate said in a press release.

In October the company said it had received a preliminary indication of interest in such a deal and was in talks with an unidentified third party about it.

Also on Monday, Seagate issued its first forecast for the current quarter, ending Dec. 31, after declining to make one when it reported its fiscal first-quarter results on Oct. 20.

Seagate said it expects revenue of at least US$2.7 billion, down from approximately $3.03 billion a year earlier. The company expects gross margin of 19.5 percent in the quarter, down from gross margin of 30.5 percent a year earlier.

However, Seagate said it believes demand for hard drives has improved, with the total available market expected to be nearly 170 million hard drives in this quarter. That would represent an expansion from 160 million hard drives a year earlier. Declining product prices can shrink revenue and margins even as unit shipments grow.

Seagate's comments on the market outlook indicate that the hard-drive industry's efforts to restore a balance between supply and demand, thus slowing price declines, are having some impact, said IDC analyst John Rydning.

This has been a hard year for Seagate, with rival Western Digital surpassing it in hard-drive unit shipments for the first time in the first calendar quarter, according to analyst firms iSuppli and IDC. At the same time, flash storage components such as SSDs (solid-state drives) are encroaching on traditional spinning hard drives, the core of Seagate's business, by offering lower power consumption and higher speed.

However, Seagate didn't have to consider taking the company private out of desperation, said Henry Baltazar, an analyst at The 451 Group.

"It's still a cash-generating, very strong business," Baltazar said. Seagate might have considered such a deal simply because it would keep the company from having to reveal so many details about its business every quarter, he said.

Because of its size, Seagate has multiple options for addressing the trend toward solid-state storage, which is still in its early days, he said. "There are definitely acquisition targets to be had," and Seagate could still become a leader in the space through internal development, too, Baltazar said.

One way Seagate has already addressed the solid-state trend is with hybrid drives, which are hard drives with an integrated cache of flash chips for faster response. These are suited mostly to consumer PCs, Baltazar said. Seagate has also introduced the Pulsar line of SSDs for enterprise data centers. But the company still needs to better address solid-state storage in enterprise data centers, Baltazar said.

Also on Monday, Seagate said its board had authorized the company to buy back as much as $2 billion worth of its shares in order to maximize shareholder returns.

Seagate shares on the Nasdaq (STX) were down $0.80 at $13.05 in after-hours trading late Monday.

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