It's not a V bottom, it's not a U bottom, it's a Nike swoosh recovery - Greg McLenon, Hotovec Pomeranz
THE EUROPEAN COMMISSION (EC) is looking into Western Digital's acquisition of Hitachi's storage business and Seagate's acquisition of Samsung's hard disk drive (HDD) business.
The phase two investigation was prompted by concerns that the deals might reduce competition in the HDD market. The acquisitions would make Western Digital the global HDD market leader, while Seagate would also gain a huge market share increase in HDDs.
At present all four companies are competitors, but these deals would leave only two dominant companies left in the 3.5in HDD arena, Western Digital and Seagate. Toshiba is also a competitor in the 2.5in market, but this would still result in a big drop in overall competition, which the EC fears could have a significant negative impact on product prices.
The EC also cited concerns about a higher risk of "coordination" between the two companies. In other words, it's worried that they might collude to raise HDD prices or employ some other form of anti-competitive measure, which would be illegal and potentially devasting to the hard drive market.
Another possible negative impact of the deals would be the sourcing of fewer heads from TDK, which would impact its business and potentially drive Toshiba out of the market, given its reliance on TDK heads. This would leave just two companies in the HDD market.
A final potential impact is that the reduction in HDD sources could affect the overall external storage device market. Many companies deliver finished hard disk drive products based on the five HDD makers' hardware, so fewer companies to source from could have a huge effect on their business.
"Hard drives are the backbone of the digital economy," said Joaquín Almunia, VP of competition policy at the EC. "The sector has already experienced significant consolidation and the proposed acquisitions will further reduce competition. The Commission will carefully examine if effective competition is preserved and innovation encouraged."
The EC said that it will thoroughly investigate these concerns and make its decision by 10 October. µ
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