Hard disk market suffers from further consolidation

Hard disk vendors Quantum and Maxtor announced the details of their merger to media representatives from throughout the Asia-Pacific region at a press symposium in Singapore last week.

Although the two companies are still in the throws of making the merger comply with legal guidelines, Quantum CEO Michael Brown explained the details of the agreement at the conference.

In a deal valued at about $US2.3 billion, Quantum's HDD stockholders will receive 1.52 shares of Maxtor common stock for every share of HDD common stock they own.

Brown is dubbing the merger as an opportunity to penetrate Quantum's traditional markets in the desktop and consumer electronics markets, as well as the network attached server (NAS) market where Maxtor is well represented.

"Consumer electronics represents a vast new horizon in the HDD market," Brown said. "Whereas the IT market generally used to be driven by CPUs and increases in processing power, it is increasingly driven by storage issues."

Brown believes this phenomena is largely driven by data explosion, which has seen impressive increases in density quickly absorbed by the market.

"Graphics, sound files, and not to mention video applications, are all becoming increasingly transferred via the Internet. People are coming to rely on high-storage capacities for everyday tasks," Brown said.

The merger will see Quantum's hard disk manufacturing arm merge with Maxtor's current operations. Despite differing approaches to production, both companies will continue to supply current lines of stock. In the long term, the merger plan will see Maxtor operations gradually adopt the highly roboticised Quantum production processors.

"At this stage we will be maintaining both manufacturing models, although the Quantum model is highly automated. Yet rather than investing in an R&D strategy, we can now focus these funds and gradually implement changes as we introduce new product lines."

While Quantum's hard disk arm will adopt the Maxtor name through the merger deal, its storage operations will continue to trade under the Quantum name.

Industry pundits are describing the move as an attempt to remain competitive in the cut-throat hard disk market. This latest consolidation has reduced the hard disk manufacturer line-up to two major players Maxtor and Seagate.

According to IDC, as separate companies, Quantum and Maxtor commanded 17.2 and 13.3 per cent of the units shipped respectively. Combined they would knock Seagate out of first place, with its 21.1 per cent of the market. However, according to IDC analyst Logan Ringland, the newly merged Mator Quantum group will still have to struggle for a first in Australia.

"One and one don't necessarily make two. Companies rarely retain their combined market share when they merge. Seagate is still ahead in Australia," Ringland said.

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