Disk manufacturers still driving hard

MONTREAL — It has been a little more than a month since Seagate Technology announced it will acquire its long-time rival Maxtor for nearly US$2 billion in an all-stock deal.

The merger of the hard drive manufacturers should be finalized this September, and according to a senior Seagate executive should also bring scale to the market.

Randy Lee, Seagate’s senior vice-president for global consumer electronics and OEM sales, explained the deal this way during this week’s CompTIA Canada Breakaway here: “Most other acquisitions in the hard disk drive space have been for product, customers or new markets. The Maxtor Seagate transaction is about scale and nothing else.”

Lee has been in the hard disk industry for more than 22 years and says he has seen many acquisitions. He believes Seagate needs to buy Maxtor to be more competitive.

Maxtor has a new manufacturing facility in China. The company has core technology in internal media and Maxtor meshes with Seagate’s strategy of owning its own technology and being vertically integrated.

Another reason is to keep pace with Seagate’s explosive growth and the need to hire more technical engineers. Maxtor, he said, solves that problem.

Last year saw double-digit growth for the first time in all four sectors of the hard drive market. The enterprise had a year-over-year growth of 15 per cent, desktop clocked in at 14 per cent, while notebooks hit 35 per cent. Topping all those segments was CE at a whopping 55 per cent.

“We predict as an industry that we’ll see compound annual growth rates of 15 per cent throughout the rest of the decade in all of these markets,” Lee said.

It wasn’t that long ago that enterprise storage in the form of Fibre Channel and SCSI saw declines just after the turn of the century. But that market has come back strong, he said.

“It all comes back to scale,” Lee said. He said that last quarter more than 105 million drives shipped from all disk drive companies. “This was the first time a one hundred million quarter (shipped) in our industry,” he said.

At least one competitor believes it will benefit greatly from the Seagate deal. Charles Hulet, director of sales for Western Digital Canada, thinks Seagate will not go after all of Maxtor’s current business, which will only benefit his company.

“We are the No. 2 player and the No. 1 is buying the No. 3 and we are going to have an opportunity to grow our business,” he said. “It is still too early to tell, but they will not get all of it, but they’ll not lose all of it either. So we will get some extra market share along with Hitachi and Samsung.”

Hulet also thinks the acquisition will help resellers and system builders. “Maxtor-Seagate is good for the industry. Maxtor had some documented industry quality issues and the channel reseller community is often hurt more by that than the Tier Ones by the nature of how the business works. A more focused, consolidated vendor will make the channel strong,” Hulet said.

Lee does not believe the acquisition will mean a loss of market share. He said that last quarter Seagate delivered 29 million drives of all sizes, while Maxtor shipped 13 million. Together that’s 42 million units of the 100-plus million shipped, with the rest split between Western Digital, Hitachi, Samsung and Toshiba.

“We understand there could be a level of attrition and we are reducing that number,” Lee said.

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Paolo Del Nibletto
Paolo Del Nibletto
Former editor of Computer Dealer News, covering Canada's IT channel community.

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