Report: Chinese Company Interested in Buying Seagate

 
 
By Chris Preimesberger  |  Posted 2007-08-25
 
 
 

The New York Times reported Aug. 25 that an unnamed Chinese technology company has shown interest in acquiring disk drive maker Seagate Technology, which owns about 30 percent of the world market share in the sector.

The possibility of such a transaction raises concerns among U.S. officials about potential national security risks regarding the transferal of such industry-leading high technology to China, the Times reported.

Seagate has been by far the most dominant disk drive maker in the world for several years. On Jan. 23, the company, based in Scotts Valley, Calif., reported the industrys first $3 billion quarter to go with whopping revenue growth of 30 percent over 2006.

The company on June 25 again demonstrated its market dominance when it introduced what it called "the first second-generation," low-energy-use, 1TB-capacity storage hard drive—the Barracuda product line—for a variety of enterprise and desktop uses. It is also now shipping the industrys first encrypted laptop drives.

Western Digital, in Lake Forest, Calif., is the other U.S.-based disk drive maker.

Seagate CEO William Watkins told Times reporter John Markoff about the Chinese companys approach in an interview. He told Markoff that Seagate was not for sale, but that if a high enough premium were offered to shareholders it would be difficult to stop.

Government officials also told the Times that while disk drives do not fall under a list of export-controlled technologies, moves to purchase a U.S. disk drive company would require a security review by federal officials.

The newspaper quoted one industry executive involved in classified government advisory groups as saying that, "Seagate would be extremely sensitive ... I do not think anyone in the U.S. wants the Chinese to have access to the controller chips for a disk drive. One never knows what the Chinese could do to instrument the drive."

Charles King, a veteran IT analyst with Pund-IT in Hayward, Calif., told eWEEK that as globalization continues, he believes that many countries have thoughts and ambitions of overtaking the United States in IT development.

"Could Seagate give a foreign purchaser a leg up in a highly technical market? Sure, but the disk drive sector, particularly the consumer space where Seagate is strongest, is moving rapidly toward commodity status. Im not sure how much serious innovation we can honestly expect from those technologies," King said.

Click here to read about Seagates low-energy, 1TB hard drive.

King added that there were similar comments when IBM sold both its PC/notebook division to Lenovo and its disk drive group to Hitachi, but the results have been much more positive than the critics claimed.

Brian Babineau, an IT analyst with Enterprise Strategy Group in Milford, Mass., told eWEEK that it is ignorant if we do not believe that other non-U.S. based countries may be better at producing certain technology products that domestic businesses.

"IBM certainly believed that it could not compete in the PC business as successfully as many of its competitors and chose to sell it to the highest bidder; it just so happened that Lenovo was that company," Babineau said.

These types of scenarios create competition and drive innovation in America, Babineau said.

"If we want jobs to remain here, we need to be challenged to build a better mousetrap. Without those challenges, we become complacent and we wont produce quality products anyway," he said. "We should only be alarmed at the economic impact of too many American technology jobs being lost to these types of acquisitions."

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