Seagate Technology, founded in 1979 and headquartered in Dublin, Ireland, is one of the world's leading storage manufacturer specializing in hard disk drives (HDDs). The substantial data needs for AI inference and AI generated video are key factors boosting demand for data storage. 1 minute AI video is 20,000x larger than a 1,000 word text file illustrating the scale of storage needs.

Primary Storage Technologies

Hard Disk Drives (HDD)

A Hard Disk Drive is a data storage device that uses rotating platters with magnetic material to store and retrieve data. HDDs remain the backbone of mass data storage, particularly for enterprise and cloud environments.

NAND Flash Storage (SSDs)

NAND flash storage is a solid state data storage device that uses semiconductor memory cells to store data electronically without any moving parts. SSDs represent the modern version of data storage, delivering faster speed and higher reliability compared to traditional drives, making them essential for performance-critical applications and AI workloads.

Compared to HDD, NAND offers faster access speeds and lower latency, therefore better suited for applications requiring quick data retrieval. HDD, on the other hand, is of lower cost, therefore ideal for bulk data storage with slower access speeds. I will be talking about HDDs in this post, keeping NAND for next.

Types of HDD devices

PC or client-grade

• 2.5" or below: Used in mobile computing products such as laptops, as well as non-PC applications like gaming consoles. This sub-segment has been largely cannibalized by NAND SSDs.
• 3.5": Used in desktop PCs and non-PC applications such as audio/visual products and video surveillance systems.

Data centers (enterprise-grade)

• Mission-Critical: Available in 2.5" or 3.5" form factors and used in high-end servers. Mission critical data is tied to core operations and requires immediate access. This sub segment has also been largely cannibalized by NAND SSDs.
• Near-Line (Business critical): Primarily 3.5" form factor, highest-capacity drives used in low- to mid-end servers. Business-critical data, while important for decision-making, record-keeping, and long-term success, does not require real-time access. Due to massive storage needs, this sub-segment will continue to be dominated by the more economical HDD.

Among these sub segments, 2.5" client grade and mission-critical have already been cannibalized by NAND, for two reasons: 1) the higher demand for performance made the transition from HDD to NAND 2) narrowing ASP gap between NAND and HDD.

While HDDs had previously lost market share to NAND, the market seems to be settled as the most vulnerable segments (2.5" PC grade, mission critical) have already been well cannabalized. HDDs remains the most economical way to store business critical data at data centers and therefore, stand to be the primary beneficiary of the data explosion.

HDD industry & value chain

Once fragmented, the HDD industry consolidated in the early 2010s. Today, three players dominate the market: Western Digital (44% market share), Seagate (43%), and Toshiba (13%).

The 2011 Thai flood played a significant role in driving consolidation and rational behavior in HDD industry. During the weeks of October 10th and October 17th 2011, severe Thai floods dramatically impacted the HDD industry. The flooding of Rojana, Bang Pa-in and Navanakorn industrial parks temporarily shut down 60% of Western Digital's total HDD output for instance. Although the Seagate, Hitachi GST (now a part of WDC) and Samsung HDD (now STX) plants were unaffected, every HDD maker was negatively impacted as factories making critical HDD components such as base plates and spindle motors were also affected.

Source: https://www.bbc.com/news/technology-15534614

Before the Thai floods occurred, the HDD industry was expected to ship 180M HDDs in 4Q11 while actual shipments turned out to be only 120M HDDs. HDD industry shipments were down 32% due to the floods. Although certain supply chain restraints persisted, HDD makers recovered much of their pre-flood production capacity by 2C12. However, HDD demand did not return to the pre-flood levels and HDD shipments never recovered to the pre-flood high of 176M units in 3Q11, resulting in lower utilization rates. The Thai flood and subsequent demand destruction thus led to HDD industry consolidation and rational supply behavior, which in turn led to higher ASP and profitability.

Areal Density and Why Is It Important?

Areal density is the amount of data that can be stored on the surface area of a hard disk drive. Progression in areal density directly impacts how efficiently data can be stored within a physical space. In large infrastructure environments like a data centre where space is at a premium, storage density improvements afford significant efficiency benefits when scaling.

Since a large portion of HDD costs are fixed, cost per GB falls as GB per drive increases. Higher capacity drives also consume less space and energy to store the same data, bringing down TCO. For example, a modern 30 TB drive with three platters uses less power than an older 20 TB drive requiring five platters.

There are two ways to increase GB per drive: 1) higher areal density (more GB per platter); and 2) more platters per drive. Since platter count is limited by physical space constraints, the industry focuses on areal density. Increasing areal density is also far more cost effective than adding platters, which requires additional expensive read/write head assemblies.

Technology Evolution to Increase Areal Density

From LMR to PMR: Traditionally, the magnetic field ran parallel to the platter plane (Longitudinal Magnetic Recording, or LMR). To increase areal storage density, the industry adopted Perpendicular Magnetic Recording (PMR), which increases bits per inch (BPI) by writing magnetic patterns perpendicular to the platter plane, making them narrower. Manufacturers began commercial PMR production around 2005-06, with Hitachi launching the first mass production product in May 2006.

After several years of steady areal density gains, PMR hit its ceiling. Maximum capacity for PMR-only drives stopped around 16-18 TB, or 1-1.3 TB/in². As areal density increased, domains became smaller, creating three problems: 1) difficulty creating and reading back data; 2) susceptibility to direction flips from heat or environmental noise; and 3) magnetic interference between neighboring domains over time.

To tackle these challenges, hardware manufacturers turned to more magnetically coercive material. However, materials with higher coercivity are also more difficult to write on because their magnetization is harder to reverse. New technology EAMR (Energy-Assisted Magnetic Recording) therefore emerged to tackle this pain point.

Three technologies exist within EAMR: 1) MAMR (Microwave-Assisted Magnetic Recording); 2) HAMR (Heat-Assisted Magnetic Recording); and 3) ePMR (energy-assisted PMR). MAMR and HAMR temporarily lower coercivity by applying energy - heat for HAMR, microwaves for MAMR, allowing bit values to be written. Similarly, ePMR uses electrical current during the write process to reduce jitter and ensure consistent write tracks.

During the PMR to EAMR transition, Western Digital bet on MAMR first. MAMR offered a cost effective incremental upgrade leveraging existing manufacturing processes, limiting costs and risks. Seagate, however, went directly to HAMR. HAMR required a costly manufacturing paradigm shift with considerable uncertainty, but it delivers significantly greater capacity upside.

Seagate began HAMR research in the early 2000s and remained committed despite greater than expected challenges. Throughout this period, Seagate refrained from pursuing MAMR, even as a backup. The development of HAMR technology is a multi year process which takes time to replicate. Seagate at one point aimed for first HAMR drives around 2018-2020, but various problems delayed volume ramp to the 2024-25. It is only until late 2024 that Seagate announced that multiple customers, including a leading cloud service provider, had qualified its HAMR drives, giving the green light for mass production.

In 2023-24, Seagate's third-generation HAMR design (Mozaic 3) reached 30 TB capacity and achieved reliability targets for mainstream deployment. By late 2024, Seagate announced that multiple customers, including a leading cloud service provider, had qualified its HAMR drives for mass production. Seagate plans to ramp volume through 2025 and beyond, introducing 40 TB models by 2025-26 and targeting 50+ TB later in the decade.

Seagate announced a fifth qualification for its 30+ TB HAMR products, with crossover expected in 2H26. A second CSP customer has commenced qualification for the Mozaic 4+ TB platform, with initial ramp expected in 1H26. The company expects to have 100% of leading CSPs qualified on Mozaic platform in the next 12 months. Given this momentum, seagate has guided a strong roadmap of increasing HAMR mix in its near line exabytes sold - the proportion of exabytes sold in nearline through HAMR will be 40% by the end of FY26, 50% by 1H27, 70% by end of FY27 and 80% by the end of FY28.

Western Digital (WDC) mentioned during the Investor day that "We are looking to start qualification in the second half of calendar year '26 and then ramping up production at scale in the first half of calendar year '27." Assume everything goes smoothly for Western Digital, the gap between qualification timing already suggests a year lead of Seagate over Western Digital. As a result Seagate's areal density and cost leadership to sustain in the near future and this will start to play out in results as mix moves increasingly towards HAMR.

Seagate's HAMR technology leadership will drive market share gains and margin expansion, translating into significant EPS growth. As areal density advances, cost per GB declines. Seagate's leading HAMR position will deliver lower costs, higher margins, and eventually a bigger market share.