Seagate Technology Inc.'s purchase of rival Maxtor Corp. would give the world's largest hard drive maker a commanding presence in a fast-growing but rapidly changing market.
The $1.9-billion all-stock deal announced Wednesday would increase Seagate's production capacity at a time when factories worldwide are churning out as many hard drives as they can to power a proliferation of computers, digital music players and video game consoles.
Buying Milpitas, Calif.-based Maxtor would raise Scotts Valley, Calif.-based Seagate's share of the global $27-billion hard drive market to 42% from 28%, according to technology research firm IDC.
"All the hard drive manufacturers are manufacturing at full capacity," IDC analyst David Reinsel said. "This gives Seagate some additional capacity and keeps it out of the hands of other competitors."
Antitrust regulators probably will review the deal, which Seagate executives expect to close in the second half of 2006.
"I think that at first blush it will appear that there is a significant concentration of share," said Seagate Chief Financial Officer Charles Pope.
But uniting Seagate, which is profitable, and money-losing Maxtor would still leave six major hard drive makers in a rapidly changing global market. For years, market leader Seagate and its competitors sold primarily to computer makers. As PC prices plummeted in recent years, margins followed.
And as manufacturers battled each other for market share, they grappled with the threat of increasingly popular, and ever cheaper, flash memory.
To diversify, Seagate is catering to the growing demand for components of consumer electronics such as MP3 players, hand-held computers, cellphones and digital video recorders.
The company provided hard drives for Apple Computer Inc.'s iPod mini music player and is the primary supplier of the 20-gigabyte hard drive in Microsoft Corp.'s Xbox 360 video game console.
"Clearly [consumer electronics] is one of the areas that could lead us into new spaces, but there's also security, and enterprise, with regulations that cause data to be active longer online," Executive Vice President Brian Drexheimer said. "What this positions us for is higher aggregate investment that leads us to a broader product line."
The rise of flash memory widely used by consumer devices is not much of an immediate threat to Seagate and other hard drive makers, IDC's Reinsel said, because it overlaps with only about 2.5% of the hard drive market.
