Seagates Maxtor Grab Expected to Bring Leverage

Seagates Maxtor Grab Expected to Bring Leverage
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News Analysis: Industry analysts point out that Seagate will have its hands full completing the technical aspect of the Maxtor merger as it simultaneously transitions to perpendicular recording on many of its devices.The acquisition of Maxtor Corp. by Seagate Technology for approximately $1.9 billion Wednesday is poised to boost Seagates Far East manufacturing capabilities and strengthen its position to dampen expected PC pricing changes in the coming year.

However, industry analysts point out that Seagate will have its hands full completing the technical aspect of the Maxtor merger in late 2006 as it simultaneously transitions to perpendicular recording on many of its devices.

Seagates move to acquire Maxtor in an all-stock transaction will serve to strengthen the hard disk drive makers standing to provide desktop and enterprise drives, while taking some leverage on the desktop away from PC OEMs and moving it back over to Seagate to help solidify its pricing, said Steve Baker, vice president of Industry Analysis for Port Washington, N.Y.-based The NPD Group, Inc.

"[The Maxtor acquisition] probably is going to force companies to not be able to decrease prices as fast," Baker said.

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"I dont think it will be a huge number, but of course theres an awful lot of leverage Dell and HP [Hewlett-Packard Co.] have there, and Seagate has lost a lot of that leverage having gone down from four to three potential desktop suppliers right now."

Jim Porter, president of DiskTrend Inc., a Mountain View, Calif.-based storage industry research firm that tracks the disk drive arena, said Seagate has acquired a company in Maxtor that was coming off a string of "unspectacular years."

For instance, Porter noted that Maxtor had gone through as many as four different chief financial officers in 2004 as well as enduring a host of other management changes.

Still, he envisions Scotts Valley, Calif.-based Seagates CEO Bill Watkins as someone who can successfully leverage Maxtors assets to allow Seagate to reduce the quantities of disk drives they are required to buy from outside the company, in addition to taking advantage of Maxtors manufacturing operations in Southeast Asia to compliment Seagates push into China—although he does expect inevitable consolidation to occur.

Read more here about the channel expectations surrounding the merger.

"Watkins is an outstanding operations leader in all basics of the industry and [has the ability of] putting the final drives together and agreeing with all the characters what the next steps should be. Im sure hell do a pretty good job of combining the companies. Hes been through industry consolation before, I think he understands what needs to be done," Porter said.

Next Page: Seagates acquisitions.

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