Seagate Munches Maxtor

Seagate and Maxtor squeezed in one last storage megadeal before the sands of 2005 ran out, in a $1.9 billion all-stock deal whereby the rival disk makers will merge into Seagate.

The deal comes at the end of a year in which Symantec closed its $13.1 billion acquisition of Veritas, Sun purchased StorageTek for $4.1 billion, and McData bought rival switch vendor CNT for $245 million. (See Symantec, Veritas Complete Merger, Sun to Acquire StorageTek for $4.1B, and McData Bags CNT for $235M.)

Enterprise users shouldn't expect a panoply of new options or hybrids. The deal was mostly driven by financial reasons: Seagate picks up extra revenue and sales channels, bumps up its manufacturing, gets rid of a competitor, and helps stabilize pricing. But Seagate doesnt gain any new technology in the deal.

Seagate already dominates the enterprise drive market, with Hitachi Global Storage Technologies (HGST) its only major Fibre Channel drive rival. Maxtor does not sell Fibre Channel drives. It makes a bigger mark with enterprise SATA and is pushing to cash in on the emergence of serial attached SCSI (SAS), but Seagate also has SATA and SAS drives. (See Maxtor, Adaptec Team Up, SATA Speeds Up, Seagate Unveils Barracuda , Adaptec, Seagate Push SAS, and Seagate Claims Lead.)

Both companies sell similar desktop, notebook, and consumer products, although Maxtor has been more successful with consumer/SOHO NAS and personal external storage. (See Maxtor Unveils OneTouch III and SMBs Get Their Backup.)“From a technology standpoint, Maxtor doesn’t have anything on Seagate,” says Dave Reinsel, program director of storage research for IDC. “Seagate is the technology leader as well as market share leader. It has the market covered.”

Analyst Phillip Rowe of Susquehanna Financial Group doubts that Maxtor’s overlapping products will survive. “There’s not much that Maxtor does better than Seagate, so outside of the current qualified products, what is the future of the overlapped products?” he asks.

Steve Turner, business development manager at Great Neck, N.Y.-based systems integrator Computech International, uses Seagate SCSI drives and welcomes the Maxtor deal. Turner says Maxtor’s external products would round out Seagate’s product line.

"Seagate is very big in the high end of the storage market, but Maxtor is bigger in the low-end," he says. "I am keen to get my hands on some of the Maxtor external drives -- we would use them mostly with notebooks for backups. We also have multiple offices, so it would enable us to take the drive with us if we want to."

Nothing will change on the product front for at least six months. Seagate CEO Bill Watkins says he doesn’t expect the deal to close until the second half of 2006, mainly because the acquisition faces antitrust review. On a conference call to discuss the deal today, Watkins said the acquisition would not affect either company’s current product line.“This generation of products that Seagate and Maxtor announced will run its course, and integration will be on the next generation following the deal’s closure,” he said.

What specifically will Seagate get from the deal? Watkins mentioned Maxtor’s manufacturing facilities in China and California, its top engineers, and its brand for some products as valuable during the conference call.

C.S. Park, who helped Maxtor cut its quarterly losses from $58.3 million to $17 million since becoming CEO a year ago, will join Seagate’s board. “This is in no way the end of the story for Maxtor,” Park said.

Seagate executives say they don’t expect problems clearing antitrust hurdles because there are several hard disk companies remaining, including Western Digital, HGST, Samsung, Toshiba, and Fujitsu. According to Gartner/Dataquest, a combined Seagate and Maxtor would have 43.1 percent of the total market through the first three quarters of 2005. However, the combined companies account for 66.2 percent of the enterprise market, well ahead of No. 2 Fujitsu at 21.4 percent.

— Dave Raffo, Senior Editor, Byte and SwitchOrganizations mentioned in this article: