Seagate Technology PLC (STX) & The Death Of The Hard Drive

Samsung used to make hard drives, but sold the division to Seagate. Seagate then turned around and put $1 billion of goodwill on its books. As Chanos noted, this tactic can be used to cover up for cash flow issues.

In addition to that, Chanos notes that Seagate Technology PLC (NASDAQ:STX)’s top stock holders have been selling out of their positions en masse, while a major executive just left the company.

Why did Samsung get out?

Obviously Samsung sold its hard drive division for a reason. In recent years, the company has emerged as a dominant consumer electronics company. Samsung’s lineup of Galaxy mobile devices has challenged Apple Inc. (NASDAQ:AAPL) for supremacy, while the company remains a major player in the traditional PC market.

One thing to know about Samsung is that, when it comes to vertical integration, no other company is even close. Apple Inc. (NASDAQ:AAPL) may be more integrated in the sense that Apple makes its own software instead of turning to Google Inc (NASDAQ:GOOG) or Microsoft Corporation (NASDAQ:MSFT) (as in Samsung’s case), but until recently, Apple was heavily dependent on Samsung for many of the components used in the iPhone and iPad.

Conversely, Samsung mostly uses parts it makes. Until it sold to Seagate Technology PLC (NASDAQ:STX), this included hard drives in its PCs.

Given Samsung’s position as a major electronics maker, and one that’s heavily vertically integrated, it’s very telling that the company was willing to sell its hard drive division. Clearly, it doesn’t see much of a future for hard drives.

RIP hard drives

The death of the hard drive market appears imminent. Mobile devices eschew hard drives entirely, while even traditional PCs are dumping the hard drive in favor of the solid state drive. Advances in cloud storage and computing, as well as media streaming, have lessened the need for local storage.

Server use will ensure that hard drives are needed for many more years, but the total demand for hard drives should be expected to drop precipitously in the coming quarters. That will likely wreak havoc on the stock of hard drive makers.

The article The Next Casualty of the PC’s Decline originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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