The 50-50 joint venture, called CacheVision, will design and market hard drives, compression software and digital conversion technology used primarily in interactive televisions and TV set-top boxes used for digital video recording.
CacheVision chief executive Richard Johnson pointed out the need for better storage in devices for the interactive market. Regardless of the amount of information a network can handle, the device that receives the data needs to be able to store it and quickly play it.
"The reason is simple," said Johnson, now former vice president of Seagate's consumer division. "The need for storage is becoming well recognized."
CacheVision, based in San Jose, Calif., plans to hire 100 people independent from current Thomson or Seagate employees.
The deal in many ways could mark a new era for both Seagate and the hard drive industry. Battered by intense price competition in the PC market, drive makers have been limping for the past few years, reporting financial losses on a regular basis.
A new wave of consumer electronics, however, is injecting hope into the industry because many devices--digital video recorders, Net appliances and Web tablets--contain hard drives instead of flash memory.
CacheVision will unveil its first products in January at the Consumer Electronics Show in Las Vegas, Johnson said.
"It's definitely a smart move for each company in today's market," said Richard Doherty, president of consulting company The Envisioneering Group. "For Seagate, it's a smart move in the long term because no disk maker has this type of alliance. And Thomson has managed to flourish with every company it has alliances with."
Thomson has existing alliances with satellite TV provider DirecTV and Microsoft's interactive television group, Doherty noted. CacheVision plans to exploit those relationships.
The venture is one of the first for the "new" Seagate. The Scotts Valley, Calif.-based hard drive pioneer is going through what could be called a midlife crisis. After several years of price wars and uneven financial performance, the company was broken up in a long-term reorganization this spring.
Veritas Software acquired shares of itself that Seagate had owned, while a group of investors took the hard drive business. The investors then reformulated the hard drive business into a private venture.
The company laid off 1,200 employees in May as part of a long-term cost-cutting initiative brought on by overcapacity and weak prices in desktop PC hard drives.
Despite its woes, the consumer electronics market shows promise. Hot products like the TiVo and Replay digital recording devices use hard drives as their backbone technology.
With the advent of digital-music home jukeboxes and additional satellite television receivers with hard drives, demand is likely to stay strong for non-PC hard drives.
Seagate supplies drives to Microsoft's WebTV division, while competitor Quantum sells the drives used in TiVo and Replay, according to Jim Porter, president of DiskTrend, a consulting company for the drive industry. Hard drive shipments are up annually, he said, growing from 170 million units shipped last year to 200 million this year.
"PC applications and server applications and notebook computer applications all continue to grow. And all the noise about consumer electronics has so far been predominately been just noise," Porter said. "But there's a general expectation that it's going to grow, and I think it's going to be substantial."
It's exactly this exploding market that Thomson and Seagate are attempting to address with CacheVision.
CacheVision is predicting annual revenue of $500 million over the next few years. The companies said CacheVision will primarily target the television market rather than other hot areas like portable digital music players.
"I don't think they've blocked themselves from doing anything," Doherty said.
Despite the companies' assertion otherwise, Doherty predicts that CacheVisioin will come out with some type of digital-music home jukebox by the end of the year.
"Nothing they've said precludes that."