Will Seagate go to War Over Flash Drives?

It could be dismissed as mere saber rattling by the old guard protecting its turf. Still, when the CEO of a major vendor starts talking litigation, the threat has to be taken seriously.

In an interview with Fortune magazine last week, Seagate (NYSE: STX) CEO Bill Watkins first dismissed solid state drives (SSDs) as being too expensive to ever catch on, but then said if they become popular Seagate would consider filing patent infringement law suits.

Watkins argued that SSDs, hard drives built from flash memory, are just too expensive, and will be for a long time. He cited the ultra-thin MacBook Air as an example. The one with an 80GB standard hard drive is $1,800 while the same notebook with a 64 GB SSD runs for $3,100.

“Realistically, I just don’t see the flash notebook sell,” Watkins told Fortune. “We just don’t see the proposition.”

Watkins has been around long enough to know that no technology ever stays expensive, and that’s especially true with flash. The price of flash memory has plummeted so much that Intel (NASDAQ: INTC) was forced to warn that first quarter margins would suffer as a result. Intel CEO Paul Otellini made a promise to make the flash memory unit profitable one way or another, and Otellini’s track record suggests he will keep his word.

So if and when SSD drives become cheap enough to go mainstream, Watkins said he’d consider suing SSD makers like Samsung and Intel for patent infringement. Not for disk storage; SSD is memory cells instead of the magnetic platters used in standard hard drives. The case would be for the interface that connects the drive to the computer.

Seagate is a big company, well on its way to a $13 billion fiscal year, but does it really want a fight with Intel? Krishna Chander, senior analyst covering the storage market for iSuppli, doesn’t think so.

“I think they want to put out the trial balloon of a threat and see how the industry reacts,” he told InternetNews.com.

So far, the industry isn’t biting. SanDisk and Intel both declined to comment on the threat.

Seagate and Hitachi own a fairly large patent portfolio related to hard disk storage and engage in a lot of cross-licensing, said Chander. So he has no doubt Seagate has a healthy patent portfolio to bring to bear. However, Chander also doubts a company like Intel would be so foolish as to infringe on someone else’s patents.

However, they are also new to drive manufacturing and mistakes can happen. “They don’t have the deep experience hard drive makers have. [Hard drive makers] have had 30 years to learn, they understand the issues and problems, these guys are just coming on board,” he said.

The SSD drives use the serial ATA (SATA) interface, which is an open standard maintained by the I/O Forum. Each firm puts its own polish on the interface to add performance tweaks for a competitive edge, but the general format is available for anyone to license.

Chander thinks this is Seagate letting the new kids know who rules the playground. “Of course he’s getting their attention. He doesn’t want them to think it’s a cakewalk. He also doesn’t want them entering into the enterprise, either. It’s one thing to go into laptops, but he doesn’t want them going into the sacred, high margin areas any time soon,” he said.

Seagate has been non-committal on SSD drives, but if it does enter that space, it will want the lucrative enterprise storage market, not the price conscious consumer market, Chander argues.

“That’s what I think they are trying to do, is hold off until their own ducks are lined up,” he said. “They are buying time to get their own products out.”