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What Seagate-Maxtor deal means for users

Jan 05, 20064 mins
Data Center

* Analysis of Seagate’s acquisition of Maxtor

A few weeks ago I listed the various storage acquisitions that had taken place during and immediately preceding the holiday season. Little did I know – had my column not been submitted to my editor two weeks prior to publication, I’d certainly have lead that story with a major mention of the fact that on Dec. 21 Seagate announced it was dropping $1.9 billion in stock to acquire rival Maxtor.

The disk drive market has always been an interesting one to track. Despite all those data-hungry applications, despite the often-referenced “exponential growth” of enterprise data (really a pretty absurd notion if no one is willing to tell you just what the “exponent” actually is), and mostly, despite the fact that at many sites data is managed so poorly that the total storage at a site often dwarfs the actual total of the data at the site – despite all this – disk drive companies have a history of sinking more often than remaining solvent.

In many respects the hard disk drive business has always been relatively easy to forecast because the amount of data we could put on a disk was, generally speaking, a function of the areal density (how many bits – these days, gigabits – we could squeeze into a square inch of media), the size of the disk, and the technology used in the read/write heads. Accessing the data was a question of the interfaces, spindle speeds, and a fairly standard set of drive electronics. All of these have followed a fairly predictable technological pace, with little or no scientific breakthroughs to separate one company from another.

The media (the disks), the drive electronics, come from a very small set of third-party companies, and are available to any vendor that can afford them. As a result, drive companies usually have products that rely on essentially similar technologies, with few major differences between them. Historically, when differentiators have existed, their competitors often acquired competitive technologies within a quarter or two. The result is that margins have often been slim, and sometimes have been negative.

How long, we were often tempted to ask ourselves during the last two decades, would all those vendors be able to survive in an atmosphere that forced the industry to work with single-digit margins? In fact, most of them have not survived to the present day.

Remember any of the following from the 1980s and ‘90s: Priam? Micropolis? Connor? All dead (or acquired) and gone. And I am sure many of you can name a dozen others as well.

How about the market leaders from just five years ago? In order of worldwide revenue, they were IBM, Seagate and Quantum, with about fifteen others filling in the gaps. IBM sold its disk business to Hitachi; Quantum reinvented itself a few times, eventually selling its disk divisions to Maxtor. Of the top three from 1999, only Seagate remains.

That’s the historical perspective. What is Seagate’s buyout of Maxtor likely to mean for you as an IT manager or a system builder?  Two things.

First, fewer suppliers will mean fewer options for buyers, at least in the short run. Expect the curve showing the decreasing cost in dollars-per-gigabyte to decelerate as competitive pressures lessen somewhat for the vendors.

Next, look forward to the marketplace reasserting itself. Market forces are like nature, and abhor a vacuum – if competitive pressures diminish and prices level off, expect some outsiders currently inactive or marginalized in the North American and European markets (Hitachi, Sony and Toshiba will bear watching) to take a greater interest. And of course there is always Western Digital.

Let there be no doubt that Seagate will be even more of a giant when this is all over. But there will still be plenty of room for competition. For competitors, clearly success will have a lot to do with how well they can successfully upgrade their offerings so that they will be seen as competitive enterprise-level products.

Success may also depend on something else, however – it may soon be equally dependent on IT managers’ changing perceptions of what they really do want in their computer rooms. SCSI and Fibre Channel have won the battle for the IT room floor for some time now, but things may be changing. As more SATA drives come to be looked upon as industrial strength devices, there may be more opportunities here for buyers than firsts meets the eye, and you may have more choices than you thought.