Seagate’s Maxtor acquisition to help hard-drive market – market consolidation due to address Flash challenge
News that Seagate Technology LLC will acquire Maxtor Corp. is a welcome development for the Hard Disk Drive (HDD) industry in general, and for the two companies in particular, iSuppli Corp. believes.
The HDD industry over the last few years has contended with volatile pricing and sharp swings from profit to loss, according to Krishna Chander, senior storage analyst for iSuppli. Maxtor has suffered a string of financial losses during the last several quarters and has undergone management changes. Even Seagate posted a net loss in its fiscal fourth quarter of 2004 ending July 2005.
To achieve better financial performance, the HDD industry needs stable pricing with moderate takedowns, according to Chander. This in turn will help the individual companies reinvest their profits into the next generation of products and technologies that overcome the laws of physics, such as perpendicular recording.
However, the industry presently has too many players, keeping the focus on gaining market share and dealing with severe price competition. Consolidation among the major players will position the HDD market for growth during the next 10 years and will allow the industry to address competition from flash memory and other technologies making inroads into the storage field.
Seagate will attain significantly more market share from the Maxtor acquisition. Maxtor is now the number-four HDD supplier in terms of market share.
The table below presents iSuppli’s HDD market share rankings for the third quarter of 2005.
iSuppli Table: Hard disk drive market share ranking for Q3 2005 (ranking based on percentage of unit shipments)
This merger also gives Seagate access to Maxtor’s customer-relations resources, as well as to its intellectual property (IP) in enterprise and QuickView designs, its retailing skills in selling its OneTouch external drive, its design centres in Longmont and Shrewsberry and its production centres in California, Thailand, Singapore and China.
Both Seagate and Maxtor have seen their share of prior mergers and restructurings. However, if past history is a good predictor, the combined companies may not retain the same level of market share that Seagate and Maxtor have now. This is because OEM customers tend to reallocate their orders to maintain multiple suppliers with a level of parity.
