Seagate-Maxtor: Thumbs-Up

Scotts Valley, Calif.-based Seagate, the No. 1 provider of hard drives in the United States, snapped up Maxtor in a stock transaction valued at about $1.9 billion. System builders said that in the past several years Maxtor, once an industry powerhouse, hadn&'t been considered one of the top providers.

Seagate and Western Digital have been the two dominant forces in the system builder channel, followed by Hitachi, Fujitsu and Samsung, they said.

“This will mean less choices for us,” said Doug Phillips, senior director of emerging technologies at Seneca Data, Syracuse, N.Y. But he noted that Seagate, with its five-year product warranty, has been a primary supplier along with several other manufacturers. Maxtor drives aren&'t used often in Seneca products, he said.

Brian Dexheimer, a Seagate executive vice president who runs channel operations, said the acquisition was less about acquiring specific technology and more about adding manufacturing capacity, particularly in China, and tapping Maxtor&'s retail prowess. Maxtor, Milpitas, Calif., makes about 60 percent of its own media but buys its heads from other suppliers, he said, adding that Seagate makes most of its own components. Seagate will decide which Maxtor products to keep based on customer input but won&'t release that information until after the deal closes in about six months, he said.

Seagate will need the new manufacturing assets as consumer-electronics makers continue demanding more storage. Dexheimer said the hard-drive industry has been growing at 15 percent for the past three years, while storage products for the consumer-electronics segment have been growing at 60 percent.

“The growth is where it traditionally hasn&'t been before, and we are being asked to make different types of products in these spaces,” Dexheimer said.

Todd Swank, director of marketing at Nor-Tech, a Burnsville, Minn.-based system builder, said he has seen no shortages resulting from consumer-electronics manufacturers&' increasing needs but added that advances in technology will increase the pressure for products. He said more manufacturing capability from Seagate, one of Nor-Tech&'s main suppliers, would be welcome as consumers start gobbling up digital video recorders and other technology that allows them to store gobs of movies, pictures and music on various devices.

“Video will be a huge demander of digital storage,” Swank said.