UPDATE 1-KKR likely to drop out of Seagate deal - sources

* Seagate shares close down 8.4 percent

* Private equity interest in Seagate waning

* Strategic buyers seen as unlikely to bid (Adds low interest from strategic buyers, bylines; updates shares; previous dateline NEW YORK)

LOS ANGELES/NEW YORK, Oct 28 (Reuters) - Kohlberg Kravis Roberts & Co KKR.N is likely to drop out of a group considering buying Seagate Technology Plc STX.O, which is also having trouble drumming up interest from fellow technology companies, sources told Reuters.

The private equity giant is one of several that had been initially interested in Seagate, including TPG Capital [TPG.UL] and Bain Capital, sources familiar with the matter previously told Reuters. [ID:nN14153918]

But two sources said KKR was likely to drop out of bidding for Seagate, confirming a Bloomberg report. The Wall Street Journal cited people familiar with the matter as saying KKR might have been discouraged because of the amount of equity -- about $4 billion -- required to complete a deal.

Seagate’s shares have leapt 25 percent since it disclosed an advance from an unidentified company keen on taking private the world’s largest hard drive maker by revenue.

On Thursday, news of KKR’s pullout pushed Seagate’s stock down by as much as 12.4 percent. It closed 8.4 percent lower at $13.94, then fell another 2 percent to $13.67 in extended trade. Fifty-five million shares changed hands during the regular session -- about three times average volume for the past three months.

TPG is seen as taking a lead role in arranging a deal, but it might have difficulty securing partners.

Strategic buyers appear to be staying away. Korea's Samsung Electronics Co Ltd 005930.KS, the fifth-ranked hard drive manufacturer, is one of the most talked-about potential investors. But several analysts view that as unlikely.

The hard-drive sector has suffered from slowing personal computer demand, with the rising popularity of tablets such as Apple Inc's AAPL.O iPad, which uses flash storage. Despite the October rally, Seagate's shares are 33 percent below their year-to-date high.

“Samsung is really the only strategic buyer who in my mind would make sense,” said Matt Bryson, an analyst with Avian Securities.

But Bryson also noted that Samsung does not view the future of storage to be in hard drives.

Wedbush Securities analyst Kaushik Roy also said that while Seagate’s business was mostly traditional hard drives, Samsung has increasingly moved toward next-generation solid state drives, which are faster and more rugged with no moving parts.

“They’ve kind of said, ‘We lost the battle on hard disk drive. Let’s shoot for the next generation,’ which is SSD,” Roy said. “Anything is possible, but if you go by history, the possibility that they would do a very large acquisition is low.”

A U.S.-based spokesman for Samsung declined to comment.

Western Digital Corp WDC.N, the No. 2 hard drive maker, is not seen as a likely buyer, in part because such an acquisition would be unlikely to pass antitrust regulatory muster. Toshiba Corp 6502.T said it will not seek to buy Seagate.

“I would say that very directly we have no interest in acquiring Seagate,” said Scott Maccabe, vice president and general manager of Toshiba’s storage device division.

“Seagate really doesn’t offer anything to us that we hadn’t planned on addressing though our own acquisition previously through Fujitsu, and also with our own internal development.”

Hitachi Ltd 6501.T, the No. 3 hard drive manufacturer, lacks the cash and has sought to cut loose its own hard drive business -- Hitachi Global Storage Technologies -- in an anticipated initial public offering, analysts said.

A spokesman for Hitachi declined to comment.

“It’s more likely to go to private equity,” Roy of Wedbush said. “(Seagate has) a better chance with private equity than Samsung or any kind of strategic buyer.” (Editing by Edwin Chan and Richard Chang)