Word that the world's largest hard-disk-drive maker, Seagate Technology LLC, is making a $1.9 billion bid for rival Maxtor Corp. could be yet another sign of consolidation in a maturing electronics industry, or something specific to magnetic disk drives or storage in general.
Flash-memory chip makers are pressuring disk-drive makers. The jump of Apple's iPod to solid-state memory storage is only the tip of an iceberg heading toward magnetic drives. Beneath the waterline is a rush of consumer electronics likely to eat up flash memory and cost drive makers design wins.
By sharing R&D spending, an enlarged Seagate would hope to expand its product line while lowering development costs. The deal promises a savings of about $300 million a year, the companies said. But when hard-disk-drive makers merge, combined revenue usually drops. This business matured years ago and has seen similar mergers try to achieve economies of scale. Maxtor itself bought Quantum Corp.'s hard-disk-drive business in 2001 for about $1.3 billion in a move meant to launch it into the No. 1 position.
But Seagate continued to thrive and extended its lead in the hard-disk-drive market in the second quarter of 2005 as shipments hit 89.7 million units worldwide, up 2.8 percent from the first quarter, according to iSuppli Corp. Seagate made 30.5 percent of the second quarter's shipments, Western Digital 17.6 percent, Hitachi GST 15.5 percent and Maxtor 13.5 percent.
So this merger may be more about Maxtor's problems than Seagate's aspirations. Maxtor reported a net loss of $17 million on sales of $926 million for the third quarter, compared with a loss of $95.1 million on sales of $927.2 million in the year-ago third quarter.
So things were getting better at Maxtor, but obviously not getting better quickly enough. Nonetheless, $1.9 billion seems to be a lot of money for the market leader to pay to tidy up an industry under pressure.
Perhaps Seagate would be better off acquiring a promising startup. Cornice Inc. (Longmont, Colo.) offers embedded 1-inch storage devices for pocketable consumer electronics like mobile phones, digital music players and personal storage devices. InPhase Technologies, also of Longmont, a five-year-old startup, has raised sizable funding for its holographic data storage.
Some say mini-disk drives and solid-state storage will coexist on handhelds like phones and iPod players, at least in the medium term. They argue that rumblings of magnetic storage's demise, like reports of Mark Twain's death, are greatly exaggerated. Still, last time I checked, Mark Twain was no longer writing.
By Peter Clarke (firstname.lastname@example.org), managing editor of Silicon Strategies, an EE Times Network Web site