Hard drive maker Western Digital to buy SSD experts sTec for $340M

Western Digital (s WDC), one of the oldest (and biggest) hard drive makers says that its wholly owned subsidiary, HGST will acquire Santa Ana, Calif.-based sTec (s STEC), a company that specializes in making enterprise solid state drives (SSDs). HGST will pay $6.85 a per share, or $340 million in cash. This represents approximately $207 million in enterprise value, net of sTec’s cash as of March 31, 2013, Santa Clara, Calif.-based Western Digital said in a press release.

STec started its life as Simple Technology in 1990 and went public in 2000, but later sold its consumer flash business to Fabrik to focus solely on the enterprise flash business. As part of the deal, the none of the sTec executives, including Manouch and Mark Moshayedi (current CEO), will stay on with the company.

Our laptops, our enterprise servers, and most importantly, data centers that feed the Internet, all use solid state drives, and their use is only going to grow. So from that perspective it is important that a company like Western Digital would embrace the future and double down on SSDs. From the release announcing the acquisition:

“Solid state storage in the enterprise will play an increasingly strategic role in the future of Western Digital,” said Steve Milligan, president and chief executive officer, Western Digital Corporation. “This acquisition is one more building block in our strategy to capitalize on the dramatic changes within the storage industry by investing in SSDs and other high-growth storage products.” We acknowledge WDC continues to benefit from both industry consolidation and growth related to cloud build outs, but remain Neutral-rated due mostly to secular concerns with the PC market.

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Baird Equity Research analyst Jayson Noland in a  note to his clients notes:

WD noted it continues to look for inorganic opportunities to expand into cloud storage, solid state, and Connected Life (digital living room). We note WD also has a strategic investment in all-flash storage array startup, Skyera. WD recently announced a collaboration with SanDisk to offer solid-state hybrid drives which are in OEM qualifications. HGST reiterated a commitment to its joint development program with Intel to deliver SAS-based SSD products.

Western Digital had paid $4.3 billion to buy Hitachi’s disk drive business in 2011 and is now one of the two major storage makers in the world. Seagate Technology is the other large storage company, that soon after shelled out $1.35 billion to acquire Samsung’s hard drive business. It also acquired Maxtor.

The reasons for this SSD frenzy is being driven by data centers which are dealing with much heavier demands on the machines, and of course our need to access information quickly. SSDs make compelling business sense as well as GigaOM Pro (Research) analyst Adam Lesser explains:

The first move from enterprise SSD makers has been to shift the conversation from cost per gigabyte of storage to IOPS per watt, or IOPS per dollar. IOPS stands for “input/output operations per second” and is a standard performance measurement of computer storage. It measures how fast a storage device can both write to itself and be read.

IOPS matters in data centers because if a storage device can be accessed more quickly, the amount of storage you need can drop. If software engineers can figure out a way to make IOPS performance as important a factor as total storage in providing end users with a solid experience, then SSDs will become more and more attractive.

We are obviously big believers in the SSD trend and have been following the developments closely for a few years. [Click here to follow our previous SSD coverage.]