SK Hynix to Establish JV with Seagate to Boost Competitiveness in Flash Memory Market

28 Dec

The Korean Herald has recently released a government document suggesting SK Hynix, the Korean storage giant, is now seeking a partnership with Seagate, a global memory provider, to establish a venture for the purpose of boosting its mid and long term competitiveness in the NVRAM market. The company’s final decision was not addressed explicitly in the document, however.

Considering the trend that HDD is slowly being replaced by flash memory and the growing pressures from technological upgrades and client requests, SK Hynix and Seagate are both expected to face numerous challenges if they do not make necessary adjustments to their product lines in the future.

Despite being a major storage agent, HDD is gradually giving its way to the quicker and much more energy efficient flash memories. The growing popularity of these memories has gradually caused the HDD market to wither. As of now, SK Hynix and Seagate are still behind their main business rivals when it comes to the overall performances of their flash memories and driver ICs.

ssd-2016q2

According to Trendfocus’s 2Q16 stats on the global SSD market, Samsung is able to continue leading the market, with an overall market share of 37%. WD is in second place with market share of approximately 16%, while Toshiba and Lite-on are in third place with a combined market share of 9%. Kingston, Intel and Micron also own shares of approximately 8%, 8%, and 3% respectively. By comparison, SK Hynix is able to only take around 4% of the entire SSD market, while Seagate only managed to grab 0.1%. The two companies are unable to generate better sales even after they entered into 3Q16.

Given that SK Hynix and Seagate do not possess the advanced technologies needed for developing flash memories and driver IC solutions such as 3D XPoint, ReRAM, and others to be released in 2020, what awaits them is either an exit out of the market, or an inevitable high-cost purchase of technologies from other manufacturers if they do not come up with any complementary remedies in the future.

In addition, the two will have to face an increasing number of challenges from WD and Toshiba’s recently established flash memory OEM alliance and Intel and Micron’s close partnership. Seagate was previously able to cope with such a challenge by gradually increasing its collaboration with Samsung, and it may choose to establish a similar connection with Micron in the future. As this type of partnership will likely be more about the trading of NAND flash chips, the collaboration between the two will unlikely evolve into a strategic alliance.

As for SK Hynix, the company’s flash memory is currently its secondary business, considering that it is the second biggest DRAM supplier after Samsung. Hence, in terms of its performance in the NAND market, it is still far from being able to compete with established market leaders such as Samsung, WD, Toshiba, Intel, and Micron.

Therefore, to boost the overall competitiveness of the two companies, a Joint Venture is not a matter of if, but when. For SK Hynix, Seagate can be a potentially good partner when it comes to business collaboration. According to the latest insider news from BusinessKorea, SK Hynix is considering establishing the venture with the aim of possessing 51% of the shares. This shows that the company is serious about maintaining majority ownership of the business.

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Following the formation of the partnership, SK Hynix is expected to contribute its existing NAND Flash chip and controller IC technologies to the venture, while Seagate will be providing its own controller and flash memory drivers. The IMFT formed by Intel and Micron and Toshiba and WD’s official joint business will serve as a good reference for the two companies.

It is inevitable that Seagate and SK Hynix will encounter problems regarding funding, talent, location, and ownership during the negotiation. Seagate may also question whether it is appropriate to let SK Hynix lead the entire venture.The company has already had the history of business partnership with Micron and Samsung on the development and testing of NAND flash technology, and this time it has to again show SK Hynix its determination for the collaboration.