Samsung Electronics Rises on Plan to Sell Hard Disk Unit
April 20, 2011, 2:40 AM EDTBy Jun Yang and Saeromi Shin
(Updates with closing share price in the second paragraph.)
April 20 (Bloomberg) -- Samsung Electronics Co., the world’s largest maker of memory chips, rose the most in more than four months after Seagate Technology Plc agreed to buy its unprofitable hard-disk drive business.
The company jumped 4.7 percent to 916,000 won, the most since Dec. 2, while the benchmark Kospi index gained 2.2 percent.
Seagate’s $1.38 billion purchase of Samsung’s hard-disk drive unit will allow Samsung to focus on its chip business, the Suwon, South Korea-based company said. Samsung may also use the funds for more investments, according to Bank of America-Merrill Lynch.
“Non-core business disposals such as the hard-disk drive spin-off and sale could be financial sources for Samsung’s new mergers and acquisitions,” analysts at the bank wrote in a note yesterday.
Seagate offered 45.2 million shares valued at $687.5 million and the remainder in cash, the companies said in a joint statement yesterday. After the transaction, Samsung will become the second-largest shareholder of Seagate with a 9.6 percent stake and will be entitled to nominate a director, the companies said.
Samsung also agreed to supply Seagate with NAND flash memory to be used in storage devices made by Seagate, according to the statement. Seagate will supply disk drives to Samsung for personal computers and notebooks.
Operating Loss
Samsung’s hard-disk business had an operating loss of about $100 million in 2010, according to an estimate by Nomura Holdings Inc. Samsung doesn’t disclose financial data about the hard-disk drive business, said Jason Kim, a Seoul-based spokesman for the company.
The deal follows Western Digital Corp.’s agreement last month to buy Hitachi Ltd.’s storage business for $4.3 billion amid shrinking sales of disk drives with devices using flash memory becoming popular.
“It’s a good deal for the industry,” said Mark Moskowitz, an analyst at JPMorgan & Chase Co. “The days of big growth rates are over. Consolidation euphoria always gets the best of investors in the near term.”
Seagate’s shares rose 0.5 percent to $17.93 in New York yesterday.
Hard-disk drive shipments will probably drop about 4 percent this quarter from the fourth quarter amid competition from smaller and faster storage products, according to research firm IHS ISuppli. Samsung and Toshiba Corp. are the biggest makers of so-called flash memory used to store data in some laptops and tablets such as the iPad and Samsung’s Galaxy Tab.
Western Digital accounted for 31 percent of global hard drive shipments in the fourth quarter, followed by Seagate’s 30 percent, Hitachi’s 18 percent, Toshiba’s 11 percent and Samsung’s 10 percent, according to IHS ISuppli estimates last month.
--With assistance from Peter Burrows in San Francisco. Editors: Anand Krishnamoorthy, Young-Sam Cho
To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net; Saeromi Shin in Seoul at sshin15@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
