December 30, 2013

Seagate acquires Xyratex to strengthen HDD market position

The market for consumer hard drive disks (HDDs) has begun to change, thanks to the recent proliferation of cloud computing software and solid state memory. Now that consumers have new options for storing their data, there is less of a need for larger, less reliable hard drives. As a result, sales of these devices have slowed as demand has fallen in the past year.

This is a time when different players in the hard drive market must compete for the dominant position. That seems to be the thinking behind Seagate's recent decision to acquire Xyratex for a price of $374 million.

According to a recent article on Forbes, Xyratex handles two different parts of the digital storage business. The majority of what the company does involves enterprise data storage systems, though it also works on capital equipment.

Much of that business involves using test equipment to determine the quality of hard drives before they are shipped. The Forbes article reported that this aspect of Xyratex will prove to be the most useful to Seagate, which already has some of its test equipment installed in its factory.

It is clear that, unless there is a sudden uptick in hard drive sales, more of the business will be dedicated to servicing existing devices through tests and repairs. Therefore, it is crucial that Seagate develop some vertical integration in the market.

It is generally easier for companies to make technology acquisitions when they already understand the business they are getting into. Still, it never hurts to work with a mergers and acquisitions firm to make sure that the deal proceeds smoothly.