Western Digital Gets Aggressive In The Enterprise SSD Space

Western Digital (NASDAQ:WDC) is on an acquisition spree to boost growth in its solid state drive (SSD) business. The hard disk drive major has announced acquisition of VeloBit, a privately held company making it its second acquisition in the last couple of weeks. ^[1] A few days back Western Digital acquired sTec Inc., a SSD manufacturer (Read Western Digital To Acquire sTec To Expand Its SSD Offerings). While the historical acquisitions in this space have mostly focused on boosting hardware capabilities and expanding the product line, the latest acquisition focuses on the software side.

VeloBit makes high-performance storage I/O optimization software, which increases performance of SSDs. While the financial terms of the deal were not disclosed, VeloBit will be fully integrated into HGST, the SSD unit of Western Digital. The latest acquisitions should help Western Digital in boost growth in its Enterprise SSD business as movement towards the cloud grows rapidly. Below we discuss this in detail.

Western Digital’s stock has risen over 100% in the past one year. We currently have a $64 price estimate for Western Digital, a slight discount to the current market price.

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Efficiency Requirements Growing With Data Volume

Overall storage need has been increasing consistently over the past few years as companies digitize their records. However, to avoid the high costs that come with managing local storage space, more businesses are relying on cloud storage. Further, more enterprises are deploying cloud computing environments in an effort to pool resources and cut costs. With their Big Data resources to harness insights from bulky data in real time, they will require storage solutions that are fast enough to handle such rapid real-time operations.

In addition, low pricing and features such as loss protection and syncing facility with multiple devices, are making remote storage services very popular with retail users. Various remote storage services like iCloud, Dropbox, Skydrive and Google Drive provide anywhere between 2 GB to 7 GB of free storage, and it costs as little as $10 per year for a 20 GB drive. According to an iHS iSuppli report, the number of subscriptions to cloud storage services was nearly 500 million in 2012, and will reach 1.3 billion subscriptions by 2017. ^[2]

As more data moves to the cloud, servers at data-centers will need to support higher input/output operations per second (IOPS) to enhance performance. An SSD provides up to 30-250 times more IOPS than a conventional HDD and therefore stands to benefit from growing aforementioned speed requirements.

How Latest Acquisitions Can Help Western Digital?

However, the competition is growing rapidly with many companies like SanDisk and Seagate stepping up efforts to tap this trend (Read SMART Storage Systems Acquisition To Boost SanDisk’s SSD Portfolio). Therefore, the SSD manufacturer who can provide more performance enhancements will gain the most of it. By combining its SSDs offerings with VeloBit software, Western Digital will be able to better distinguish its data-center storage solutions. VeloBit’s SSD caching software increases the speed of applications as well as server density by providing better input/output performance. This results into higher efficiency of both the processor and storage resources.

The recent acquisition of sTec will also lend support to Western Digital’s efforts in gaining market share. Western Digital has lacked a high-end PCI Express (PCIe) SSD product line even as it has a range of enterprise SAS SSD products. PCIe SSDs are much faster than SAS SSDs as SAS connect to the host computer through host adapters, which in turn connect to the PCIe interface. With growing demand for speedier access, the use of PCIe SSDs in servers is growing at a high rate. The sTec acquisition complements its enterprise SSD product portfolio as it will give Western Digital ready access to its PCIe SSDs and an entry into the server flash market. Further, sTec has vast intellectual assets with over 100 SSD-related patents. sTec relies heavily on OEMs and has not been able to get its revenues to grow due to growing competition. Western Digital can leverage its world class retail distribution and strong relationships with OEMs to expand revenues. Further, HGST currently has a joint-operation with Intel for SSD controllers and the acquisition will make HGST more independent.

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1. Western Digital Acquires Velobit; HGST to Integrate I/O Optimization Software Into Its Solid State Drive Portfolio, Western Digital, July 10 2013 [↩]
2. Subscriptions to Cloud Storage Services to Reach Half-Billion Level This Year, iSuppli, Sep 06 2012 [↩]