Maxtor/Quantum merger signals consolidation

By Heidi Biggar

The upcoming merger of Maxtor and Quantum's hard disk drive (HDD) division early next year portends a growing trend toward greater consolidation in the storage industry - a trend dictated by razor-thin margins and intense competition.

"The latest round of HDD industry consolidation is symptomatic of an overall industry that is still growing, but that has penalized its participants," reports Dave Reinsel in the IDC bulletin, "Maxtor plus Quantum: Leveraging Strengths in a Tough Market."

"The indicators have been there for a long time," adds Greg Piligian, program director for IBM's server hard disk drive business. "The only way players are going to stay in the market is if they get bigger. The trend is toward fewer, bigger competitors."

The combined company, which will carry the Maxtor name, is expected to generate annual sales of about $6 billion, with drive shipments of more than 50 million units per year, officials say. Maxtor anticipates annual cost savings of $120 million to $200 million within 24 months of the merger by eliminating redundancies in R&D and other efforts. A 10% reduction in overall headcount is projected.

"There's a real opportunity to achieve synergy and reduce expenses," says Mike Brown, chairman and chief executive officer at Quantum. "It will lead to increased investments, and opportunity for better revenue and profitability."

Brown says the company will invest heavily in such high-growth markets as consumer electronics, network-attached storage (NAS), and Intel-based servers. The two companies' drive families are, for the most part, complementary. Company officials say that the two product lines will be integrated over time, but not for 12 to 24 months. Drives will be manufactured at Maxtor's Singapore facility and at MKE's plants in Singapore and Japan. (MKE is Quantum's manufacturing partner.)

Seagate is currently the market share leader in the overall HDD market (21%) and in the desktop HDD market (23%). However, the combined Maxtor-Quantum operation will outstrip Seagate with a 31% share of the overall HDD market and a 36% share of the desktop market, according to IDC's unit shipment estimates.

However, some share loss is inevitable during the merger and ensuing transition due to customer hesitancy to rely on any single supplier for more than 30% to 40% of total drive requirements, explains IDC's Reinsel.

To thwart market share loss, Maxtor officials say they will focus on continuity, cost, performance, and time-to-market issues. "Market share is a reward for your execution," says John Cannon, current Maxtor president and chief executive officer. "We expect share loss to be minimal."

This article was originally published on October 01, 2000