We all know that the era of hard drives is coming to an end, replaced by the quicker, more power-efficient solid state drives. Between a technology shift and a number of conspiracies and scandals, Samsung and Hitachi have decided to close up shop on their hard drive businesses and sell them off to the competition.
The problem here is that the competition is few and far between. In fact, as of right now, there are only 4 companies manufacturing hard drives: Hitachi, Samsung, Western Digital and Seagate. Because of this, Western Digital has agreed to purchase Hitachi's business for $4.3 billion and Seagate will pickup Samsung's business for $1.375 billion. Clearly the, now, big 2 believe there is still enough of a market to shell out a combined $5.675 billion to lock-in the industry.
Why would they spend the money instead of just letting these guys fail? Hit the break to find out.
There are a couple of possibilities as to why these divisions would be purchased. The most likely explanation is that extra production lines are always a good thing for manufacturers. Picking up Samsung and Hitachi's production lines will allow the other guys to build more drives quicker. This will become important because they will now be the only guys in the business.
We can probably expect higher prices because of the purchases, as well. In addition to an industry who has been known for price fixing, having only 2 competitors will increase the risk and temptation to get together and artificially inflate prices. Because of this, the European Commission is investigating the mergers and might prevent them, at least within the EU. As of now the US is not investigating, but I wouldn't expect it to stay that way.
We'll keep an eye on the proceedings in Europe and future proceedings here in the US and keep you posted on the process.
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