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10/2/2006
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Seagate Confirms Dual-Brand Strategy, Sees Price Wars

Going forward, the Seagate brand, as applied to desktop and mobile PC drives, will be aimed at more of a premium market than the Maxtor brand, a Seagate executive explains.

Seagate Technology Monday unveiled its new MobileMax line of mobile PC hard drives as part of a move to differentiate its legacy Seagate and Maxtor drive lines in the wake of its acquisition earlier this year of Maxtor.

The dual-branding comes as the hard drive industry faces a continuing price war stemming from moves by several drive vendors to grab part of Maxtor's market share since Seagate originally unveiled a plan to acquire Maxtor in December.

The acquisition closed in May.

Going forward, the Seagate brand, as applied to desktop and mobile PC drives, will be aimed at more of a premium market than the Maxtor brand, which is being positioned as a value line, said Marc Jourlait, vice president of segment marketing for Seagate, Milpitas, Calif.

The Seagate-branded Barracuda desktop PC drives and Momentus mobile PC drives include premium support and a five-year warranty, compared to standard support and three-year warranties for its DiamondMax desktop PC drives and MobileMax notebook PC drives, Jourlait said.

That plan is evident in Monday's move by Seagate to introduce its new MobileMax mobile PC drive line.

The MobileMax line currently consists of three parallel ATA models with 2 Mbytes of cache, including a 40-Gbyte, a 60-Gbyte, and an 80-Gbyte model, Jourlait said. Seagate sells drives with similar specifications under its Momentus line as well.

However, Jourlait admitted, the Momentus and MobileMax drives on the hardware side are the same, with one exception: the Momentus drives have a non-operating shock rating of 350 Gs compared to 250 Gs for the MobileMax line.

System builders are still trying to understand the need for both a Seagate and a Maxtor brand in the channel.

Todd Swank, director of marketing at Northern Computer Technologies, Burnsville, Minn., said he expected the Maxtor name to go away in the channel. "I expected to see it in retail, but not in mobile, unless there's a big difference in pricing," he said.

While giving Seagate drives a five-year warranty compared to three years for Maxtor drives might make a difference in perception, the major difference will continue to be the price differential, Swank said. "If pricing is not a big difference, people will stay with Seagate," he said. "Seagate has a good reputation."

Jalil Mahini, owner of Micronet Systems, a small Niles, Ill.-based system builder, said the strategy may be good for Seagate, but not necessarily for the channel as Seagate's acquisition of Maxtor eliminates a competitor.

"Prices have dropped a little recently," Mahini said. "But competition is always good. The more choices, the better. If the end user doesn't mind, we get the lowest-priced hard drives, and all have good quality."

Cami Parks, marketing manager at Easter Data, a Norcross, Ga.-based custom system builder, said Seagate's dual-brand strategy will work as long as the vendor ensures a smooth warranty and RMA (return merchandise authority) procedure for the Maxtor-branded products.

Jourlait said that by bringing desktop and mobile PC drives to market under both the Seagate and Maxtor brands, it gives channel partners another weapon to use against drive offerings from the like of Western Digital, Lake Forest, Calif., or Samsung Information Systems America, San Jose, Calif.

That other weapon may be needed. iSuppli, an El Segundo, Calif.-based consulting firm, late last week reported that Seagate's acquisition of Maxtor has triggered a price war as vendors fight for the market share previously held by Maxtor.

Seagate expected to grab about half of Maxtor's market share, which left the other half up for grabs, forcing prices for low-end desktop PC drives and some mobile PC drives to fall between 5 percent and 7 percent from the first quarter of 2007 to the second quarter, iSuppli said.

iSuppli said in the report it expects the price wars to continue until the end of the year.

iSuppli estimates Seagate's gross margins for its own-branded drives to be 23.4 percent in the second quarter, compared to -12.9 percent for Maxtor-branded products.

Jourlait said he is not surprised to see a price war, but he is worried about its repercussions for the industry.

Seagate made about $1 billion in net operating profit in fiscal year 2006, which ended June 30, Jourlait said. However, the rest of the industry in total lost hundreds of millions of dollars as they fought to buy market share. "But people are not buying market share," he said. "They can really only rent it for so long."

Price wars make absolutely no sense for the industry, channel partners, and ultimately, for consumers, Jourlait said. "Customers are hurt because, if the manufacturers don't make any money, innovation suffers," he said.

The channel has not seen a big impact from any price wars.

Swank said he is seeing downward price pressures, especially in the 160-Gbyte to 250-Gbyte range. "But it's not seen so much a price war as a cyclical price drop," he said.

Parks said that prices for hard drives are already very low. "There's absolutely no room for a price war," she said.

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