Flash vs. hard drive battle heats up by Jon Fortt @FortuneMagazine March 17, 2008, 12:14 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Lenovo’s critically acclaimed ThinkPad X300 laptop does without a hard drive. Image: Lenovo While munching on a reuben at Birk’s, a steakhouse in Silicon Valley, Seagate STX CEO Bill Watkins is explaining why he’s not too worried about a these trendy new laptops that have everything but a hard drive. On the surface, this would seem to be a big problem. Seagate, after all, is the world’s largest hard drive maker with expected sales of more than $3 billion this quarter – so Watkins likes to see his wares go into more gadgets, not fewer. It’s easy to see why he tends not to favor devices like Lenovo’s sleek ThinkPad X300, which is winning raves for its light weight and silent operation, and its 64-gigabyte flash storage drive. And the X300 isn’t the only laptop that’s doing without a hard drive in favor of a flash solid state drive, or SSD. A version of Apple’s AAPL MacBook Air also comes with 64 gigabytes of flash. And there are other defectors, like the diminutive Eee PC from ASUS. But the key thing, Watkins argues, is that SSDs are just too expensive, and will be for a long time. Just look at the MacBook Air. There are two versions of the Apple laptop, one with an 80 GB hard drive for $1,800, and one with a 64 GB SSD for $3,100. Why pay so much more for less storage? It’s not a difficult choice. “Realistically, I just don’t see the flash notebook sell,” Watkins says. “We just don’t see the proposition.” But in case flash prices continue to plummet and the flash drives really do catch on, Watkins has something else up his sleeve. He’s convinced, he confides, that SSD makers like Samsung and Intel INTC are violating Seagate’s patents. (An Intel spokeswoman says the company doesn’t comment on speculation.) Seagate and Western Digital (WDC), two of the major hard drive makers, have patents that deal with many of the ways a storage device communicates with a computer, Watkins says. It stands to reason that sooner or later, Seagate will sue – particularly if it looks like SSDs could become a real threat. Watkins might want to keep his lawyers on speed dial. The price of flash has been dropping so fast that it’s surprising even the pros. Intel CEO Paul Otellini had to promise investors earlier this month that he wouldn’t let the losses from Intel’s flash businesses sink the whole company’s profits, after flash prices greeted 2008 by dropping almost twice as fast as the company expected, leaving Intel saddled with a lot of devalued inventory. To shore up its flash business and boost sales volumes, Otellini said Intel will push more aggressively into the SSD market in the second half of the year – and it’s not hard to imagine what could result. If Intel starts pushing low-cost SSDs for laptops, rivals such as Samsung and SanDisk (SNDK) could easily respond with a price war, with all of them competing to get Hewlett-Packard (HPQ), Dell (DELL) and other major laptop makers to buy up their flash inventories. So if a more intense SSD price war does flare up, will flash prices drop far enough to rattle Watkins? It might be unwise to bet against it. In a presentation for media and analysts earlier this month at Samsung’s Silicon Valley office, executives at the flash memory leader strongly hinted that they’re willing to see flash prices drop even more steeply this year, if it means wrestling more laptop business away from hard drive makers. This much seems certain: Things will only get wilder in the storage world this year, especially for laptop buyers and patent lawyers.