Seagate to acquire Dot Hill Systems for $694 mn

Seagate Technology announced its deal to acquire Dot Hill Systems, a supplier of software and hardware storage systems, for $694 million.

The main strategy of Seagate is to add Dot Hill’s external storage array-based systems and software products to Seagate’s storage systems offerings and offer as part of Seagate’s Cloud Systems and Electronics Solutions business.

Seagate will leverage Dot Hill’s storage technology IP portfolio and software capabilities to drive innovation and provide incremental value to their combined OEM customer base.

“Dot Hill’s storage systems and IP portfolio are an addition to our storage technology portfolio, enabling us to accelerate the growth of Seagate’s OEM-focused cloud storage system and solutions business,” said Phil Brace, president of Cloud Systems and Electronics Solutions at Seagate.

Meanwhile, Fitch Ratings on Wednesday said the ratings for Seagate Technologies, including the BBB Long-Term Issuer Default Rating (IDR), will not be affected by the acquisition of Dot Hill Systems.

Seagate’s acquisition of external storage array-based systems and software provider, Dot Hill, will expand Seagate’s storage systems offerings and should help accelerate growth for the company’s original equipment manufacturer (OEM)-focused cloud storage systems and solutions business.

Dot Hill will add nearly $250 million of annual revenues, growing in the mid- to high-single digits, and almost $20 million of operating EBITDA.

Fitch’s expectation for a relatively stable HDD pricing environment going forward, despite weak PC unit demand, due to:

# continued strong growth in data driven by the cloud and internet-enabled mobile devices

consolidated industry structure with Seagate and Western Digital Technologies Inc. (WDC) controlling roughly 85 percent of the HDD market

# continued favorable HDD mix shift with higher capacity HDDs for cloud computing offsetting the decline in lower capacity drives for the PC industry

# limited capacity growth as companies across the HDD supply chain, including Seagate, expand capacity cautiously within the context of macroeconomic uncertainty.

Fitch believes Seagate’s FCF will benefit from

# a more stable HDD pricing environment

# lower anticipated demand volatility as secular growth in data and cloud computing reduce the historically strong correlation between cyclical PC demand, HDD shipments and profitability

# favorable product mix shift toward higher capacity, more profitable HDDs deployed in cloud computing

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