Mergers Leave Western Digital Ripe for Picking

The companies in the computer hard-drive industry might not be household names, but just about every type of consumer electronics appliance or gadget uses the components to store digital files, from songs to TV shows.

Now, the storage industry might be poised for a new round of consolidation, and analysts are watching closely for signs that less competition will affect prices on a wide range of consumer products.

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In the United States, the competitive landscape is down to Seagate Technology and Western Digital Corp. -- and Bear Stearns recently published a report asserting that Western Digital could be an acquisition candidate for larger overseas companies such as Hitachi Ltd. or Toshiba Corp. Western Digital's stock share prices rose 10 percent after the report was released.

Western Digital "now faces an industry with larger players with broader resources," stated the report, written by research analyst Andrew J. Neff. "To remain competitive in the long term, it may need to join one of the other leading vendors."

A spokesman for Western Digital, Steve Shattuck, would not comment on the report yesterday.

Tech analyst Roger Kay said that Seagate has been snapping up smaller competitors for years. "If there's a company you worry about becoming a monopoly in this space, they're the ones you keep an eye on," he said. "Seagate has become a behemoth."

Seagate completed its latest acquisition Monday, acquiring its onetime rival, Maxtor, in a $2 billion, all-stock purchase that was announced May 17. Seagate said it plans to lay off about 6,000 workers from Maxtor's workforce of 12,000.

But a reduction in the number of hard-drive makers might not yet be a cause for concern among product makers or consumers, said Ashok Kumar, an analyst at Raymond James. Hard drives are considered a commodity item, with no differentiation among consumer electronics-manufacturing customers except for price -- and one less competitor in the field shouldn't change that, he said.

"This is a very competitive industry, and market share shifts are very dynamic," he said. From one quarter to the next, a competitor may gain or lose 10 percent of the market against its competitors. Kumar said that he didn't see why any overseas company in the hard-drive business would gain much advantage by buying Western Digital.

Kay agreed, saying there is still enough competition from Korean and Japanese hard-drive makers -- as well as from a competing type of memory called flash -- to keep Seagate from monopoly status.

With revenue of $4 billion, Western Digital is a small player compared with consumer electronics rivals such as Fujitsu Limited and Toshiba, with revenues of $42.9 billion and $52.3 billion, respectively. The combined Seagate-Maxtor would pull in revenue of about $12.4 billion, based on last year's figures.