In a world with massive overcapacity, firms need to blunt competition. Here is a case in which one company buys out another, just to eliminate a competitor.Hansell, Saul. 2007. "Seagate: Missed the IPod but Selling to Lots of Snoops." New York Times On Line (10 September).
http://bits.blogs.nytimes.com/2007/09/10/seagate-missed-the-ipod-but-selling-to-lots-of-snoops/#more-423"
In 2006, there was a cutthroat battle for market share set off in part by Seagate's acquisition of Maxtor. This year, competition has eased and Seagate's gross margin has expanded to 24 percent. "The industry can't sustain two years of price wars, Mr. Watkins said, referring to rival drive makers. "People decided to stop losing money." When Seagate bought Maxtor in 2005, it kept hardly any of that company's technology or employees. The $1.9 billion deal was simply about removing a competitor. Seagate was No. 1 in the market; then Western Digital followed by Maxtor. While it kept the Maxtor brand, Seagate makes all its drives in what had been Seagate facilities using Seagate's technology. The company figures it lost half of Maxtor's market share. But the other half, plus the benefits of reduced competition, make the deal worth while, Mr. Pope said."
Well, that's one way to deal with over-capacity: don't hang on to it waiting for an increase in demand, just get rid of it. And dropping prices to increase sales: why that's not supply and demand in action, it's price warfare! So much for econ 101. And those experienced engineers and such who worked for Maxtor, can't be no good, just dump them over the side. Well, if I do upgrade the mobo and buy a SATA drive, you can bet it won't be a Seagate or a ``Maxtor''.
ReplyDeleteIsn't this pretty much Oracle's strategy in enterprise software?
ReplyDeleteYes. It also explained a wave of consolidations in the automobile industry.
ReplyDeleteI posted this story because it is more honest about the motives.
It happens a lot in the software industry as well.
ReplyDelete