Disk drive merger
Seagate Technology, the world's #1 maker of computer hard disks, announced it will merge with #3 Maxtor in a $1.9 billion deal. Seagate has about 30% market share worldwide, while Maxtor has around 16%. That combined share may raise US antitrust flags, so the deal is by no means certain.
Maxtor actually was #2 until recently, when surpassed by US-based Western Digital. The company also, in the last quarter, started falling behind Japan's Hitachi, and has lost money in 4 or the last 5 quarters.
US-based Maxtor and Seagate are ancient in Silicon Valley terms. Seagate was founded in 1979, while Maxtor started up in 1982. They have survived in a market place that has seen many other disk drive companies start and then go out of business. Both companies have thrived on acquisitions. Seagate bought out the disk drive operations of pioneer Control Data Corp. (1989) and rival Conner Peripherals (1996), Maxtor bought out Quantum in 2002. (In 2002, Hitachi bought IBM's disk drive business.)
The motive is hinted at in a Wall Street Journal article ("Seagate Reaches $1.9 Billion Deal To Buy Hard-Disk Rival Maxtor", 12/21/05)
Disk drives are in heavy demand to store data in computers and a growing array of consumer products. But competition is fierce, forcing manufacturers to keep boosting the storage capacities of their products while driving down prices.
Or, as USA Today puts it ("Hard drive maker Seagate to buy Maxtor in $1.9 billion deal", 12/121/05)
Now, six players - including Western Digital, Samsung, Toshiba and Fujitsu - account for most sales. The smaller playing field will help stabilize prices and improve profit, creating steadier and more reliable supply.
Another way of reading the merger is that by getting rid of one major competitor and consolidating the market, Seagate may be able to stop the downward spiral of prices in its market. That is needed, as hard disk makers are increasingly fighting with flash memory makers at the bottom end of the market (such as in Apple iPods.) Furthermore, even newer solid state storage technologies are threatening to come on the market, threatening the mid-to high-end market.
More important, as we see with many oligopolies that are also oligopsonies, may be Seagate's ability to squeeze its own suppliers and employees. Seagate, whose technology overlaps with Maxtor's, will be closing the least profitable Maxtor factories. It will also have the market muscle to get better deals from the (usually Asian) makers of component parts.
