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Seagate-Maxtor merger could stabilize disk pricing

Fewer competitors in the market could mean that disk prices drop less dramatically in 2006, analysts say.

Seagate Technology announced that it will acquire rival disk maker Maxtor Corp. in an all-stock transaction valued at $1.9 billion. Meanwhile, analysts on Wall Street and in the storage industry say users could feel the effects of the deal on disk pricing.

"We're definitely going to see the dollar-per-gigabyte in the storage market continue to moderate," said Dave Reinsel, research manager for hard disk drives and components with IDC. "Disk prices have been dropping more than 30% year on year, and that may slow down a bit."

With this merger, Reinsel pointed out, Seagate acquires "an inordinate amount of share -- more than two thirds of the revenue and some 65% of the units on the market," he estimated.

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"Maxtor caused quite a bit of pricing craziness with their '20% market share or bust' marketing strategy a couple of years ago," said John Monroe, research vice president for rigid disk drives with the Gartner Group. "We'll probably see some amelioration in the pace of price declines."

In one way, however, pricing stabilization could benefit end users, said Steve Berg, senior analyst with Punk, Ziegel & Co. "It'll be much easier for planning capital spending and budget forecasting."

Moreover, the analysts pointed out, any price stabilization will be more of a hiccup than a sea change. "It's not going to cause prices to jump up all of a sudden," Reinsel said. "We'll continue to see a downward pricing trend."

In terms of product offerings, the analysts said, most end users will probably not see much of a change in what they buy, with a couple of possible exceptions.

"Maxtor was developing a 3.5-inch form factor 10,000 RPM disk," Reinsel said. "But Seagate is really pushing toward 2.5-inch form factors. Any suppliers that were hoping for a refresh to the 3.5-inch version will probably have their hopes squashed by this acquisition."

Seagate has also been ahead of the market with a concept called perpendicular recording, in which the magnetic grains on a disk are laid on their side, perpendicular to the platter surface for higher density.

Berg said, "Maxtor customers could take advantage of that technology sooner than they would otherwise."

In general, however, Seagate and Maxtor don't play in the same space. Seagate has long been the market leader in enterprise-class drives, while Maxtor has held more mind share in the consumer market.

Still, some industry experts believe the move by Seagate shows that ATA drives, one of Maxtor's specialties, are gaining share in the enterprise market -- and Seagate wants to get in on the game.

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