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Maxtor sells out to Seagate

And then there were two

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Seagate is buying Maxtor in a $1.9 billion all-stock transaction. The world's number one HDD manufacturer is getting a whole lot bigger, paving the way to manufacturing efficiencies as it integrates Maxtor's factories into its intricate and orchestrated world-wide manufacturing facilities.

Maxtor had weakened considerably in recent years and was then pulled together by emergency management to prevent the firm from collapse. A trigger to that weakening was Dell cancelling a supply contract due to HSDD quality problems.

There were a string of senior management exits, such as this in November,2004: 'Maxtor in coma as chief exec/finance chief leaves', which was quickly followed by: 'Maxtor president appointed in double-quick time',.

Maxtor had a good position in 3.5 inch drives and had been particularly successful with its consumer line of One Touch drives combining external USB storage with Retrospect backup software. However it didn't have the financial muscle to develop a thriving small form factor disk line in the sub 3.5 inch space and this crippled its consumer HDD business where it could only sell to personal video recorder manufacturers who could take the 3.5 inch drives. The burgeoning mobile phone, PDA, music player and digital camera markets for sub-2 inch drives was closed to it.

Maxtor was also apparently late into perpendicular recording technology and thus faced a future of being increasingly further behind competitors such as Western Digital and Seagate. The new management had stabilised the company, building an SAS line for example, but future product development required lots of cash and a sustained catch-up effort lasting several years. Fujitsu, Toshiba, Hitachi GST and even Samsung are active in the micro-drive space and Maxtor was nowhere.

Its assets were its consumer brands and its manufacturing plants.

Seagate, growing from strength to strength, now gains manufacturing capability. The combined operation expects to find $300million/year operating expense savings after the first full year. Bill Watkins, Seagate CEO said: "With the increased scale of the combined company, we can reduce overall product costs and provide more innovative products at more competitive prices.”

It will be expensive to integrate the Maxtor operations into its finely-balanced and tuned manufacturing chain and not all Maxtor plants will survive. Almost inevitably there will be job losses. Closure of the transaction is expected in the second half of 2006.


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