But if Seagate Technology seals its bid to buy Maxtor Corp. prices won’t continue to fall as sharply and may even level off, according to industry members.With the number of American hard drive manufacturers knocked down to two (the other is Western Digital) and Seagate able to get better pricing from its suppliers, buyers going to get better quality drives, predicts Brian Babineau, an analyst with the Enterprise Strategy Group based in Palo Alto, Calif.
“But they’re going to have to pay a bigger price,” he added.
“When you go to fewer (hard disk) suppliers you have to expect pricing to be a little bit higher, or more stable.”
“Given the consolidation in the marketplace, I can’t see how this will bring additional downward pressure on prices,” agreed Howard Goldberg, president of Skydata Corp. of Mississauga, Ont., which resells storage systems from EMC Corp., Sony and others.
“One would believe it will have the opposite impact.”
On the other hand, he added, if Seagate is more profitable by eliminating a competitor, buyers should see benefits in better drives.
Almost US$2 billion
Under the proposed deal Seagate will buy 84 per cent of Maxtor for US$1.9 billion in an all-stock transaction.
It is expected to be completed in the second half of the year.
Seagate predicted in a press release the combined entity will generate “significant synergies,” including saving US$300 million in annual operating expenses after the first full year of integration.
“These capabilities will enable the combined company to compete more effectively as the highly competitive data storage industry addresses the challenges and opportunities for significant growth that lie ahead,” Seagate said in the release.
Jim Estill, CEO of distributor Synnex Canada, wasn’t sure if the deal is good for the channel. Disk drives are in “a tough, semi-disorderly market, so having less players may make it a little bit more orderly, which I think might make it easier for resellers. The downside is less competition.”
On the other hand, Michael Gazdic, Ingram Micro Canada’s vice-president of vendor management, believes one less manufacturer will bring “more sanity to the marketplace.”
As for competition, “I think you’ll see Samsung, Hitachi, smaller players make up the difference,” he said.
The deal is a vindication of sorts for C.S. Park, a member of Maxtor’s board who stepped in to become CEO in November, 2004 when the company was in trouble — in the third quarter of 2004 it lost US$95 million — and brought in a new CEO and CFO.
The moves worked. In October it reported a third quarter loss of only US$17 million. Then Seagate struck.
“It’s an aggressive move,” said Babineau, who also credited Maxtor with turning “the Titanic around before it sunk.”
As for competitors, Babineau thinks Western Digital should be pleased because a competitor has been taken out.
“I think Hitachi (Global Data Systems) is a little more concerned because it built up (market) share when Maxtor faltered . . . Seagate’s going to be a much stronger competitor against Hitachi.”
“The happiest company may be Toshiba, who I believe is coming back into the disk drive business slowly with their own technology for consumers. Now they’ve got a little bit more room for their products.”