What Does Seagate Need From Maxtor?

Seagate's plan to acquire rival disk-drive maker Maxtor will create a major force to be reckoned with in the storage industry. The all-stock transaction, valued at $1.9 billion, will make market-leader Seagate the most dominant supplier of personal, desktop, notebook and enterprise disk drives.

The deal, announced late last month, is subject to regulatory and shareholder approval; it's targeted to close in the second half of this year. Unlike past megamergers in the disk-drive industry, such as Hitachi's acquisition of IBM's disk-drive business, and Maxtor's acquisition of Quantum's hard-disk-drive business, experts see Seagate's purchase of Maxtor as a clear consolidation play, given the significant product overlap of both companies' product lines.

"I don't think there's going to be any integration here," says Gartner analyst John Monroe. "There may be some technology they can use, but this is purely a power play."

Seagate had a 28.8 percent share of the disk-drive market for the first three quarters of 2005, while Maxtor, the No. 3 player, had 14.3 percent, according to Gartner. "Seagate is the most formidable force in the hard-disk-drive industry," Monroe says. "This just makes them a more formidable force."

Most agree that doesn't mean the new Seagate will ultimately have 43 percent of the market. Company officials concede that the acquisition will lead to some share loss, but believe that by combining manufacturing, supply chains and other operations, the resulting company will be a much stronger player. "The combined company will be better positioned than either company on a standalone basis," said president and CEO Bill Watkins on a conference call to investors announcing the deal.

Watkins said it was too early to predict how the product lines will be impacted--noting it could be about nine months before the combination is complete--and the companies will continue bringing out new products.

But, says Brian Dexheimer, executive vice president of Seagate's storage business, "We expect over time we will migrate to Seagate's product lines. In terms of programs, it's our expectation, whether we keep our products or the brand, that Maxtor's products will fall under the Seagate programs."

Distribution partners say the impact on the channel will be beneficial in that it should provide more stability for the rest of the vendors.

Joe Cousins, marketing vice president of Bell Micro and a former Seagate channel executive, says there are enough players that channel partners will still be able to source their drives from multiple vendors. "I think there will be enough hard-disk-drive manufacturers out there to keep customers comfortable that there's good competition," he says.