Who's in, who's out?

Seagate’s proposed acquisition of Maxtor is not expected to close until the second half of 2006. Nevertheless, distributors and resellers of the two hard drive giants will already be looking long and hard at the ramifications for channel partners of both vendors in the Middle East.

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By  Stuart Wilson Published  January 12, 2006

Seagate’s proposed acquisition of Maxtor is not expected to close until the second half of 2006. Nevertheless, distributors and resellers of the two hard drive giants will already be looking long and hard at the ramifications for channel partners of both vendors in the Middle East.

As with any acquisition of this size, the word ‘synergy’ has been bandied around with seemingly boundless enthusiasm by the various executives involved. For ‘synergy’ read cost cutting — not just in the rationalisation of manufacturing operations and staff cutbacks where functions are duplicated — but also in the consolidation of the route-to-market that the enlarged entity uses.

When the merger team emerges from their clean room — where they are no doubt hammering through the fine details of the acquisition and the integration process — they will have to take some tough decisions regarding the channel that the combined entity will sell its product portfolio through.

At present, both Seagate and Maxtor have fairly well established channels in the Middle East with some existing overlap. If anything, Maxtor probably has the edge in terms of its market coverage and ability to hit specific parts of the market such as the retail sector.

Maxtor currently uses both Tech Data and eSys as global distribution partners and has also signed up FDC and Almasa as regional distribution partners in the Middle East. Delta has been brought on board as a retail-focused distributor for the UAE, with Jarir taking on a similar role in Saudi Arabia. Over in Egypt, MAS is pushing both internal and external drives for Maxtor and Sahara’s operation in South Africa is doing the same across the African continent.

Seagate, in contrast, has Asbis, Logicom and Mindware as its regional distribution partners in the Middle East. Like Maxtor it too has agreements in place with both eSys and Tech Data as well. Over in Africa, Seagate is currently working with Storgate in South Africa.

The CEOs of both vendors have made no secret of the fact that greater efficiency is a driving factor behind the decision to join forces in the already highly consolidated (and also highly competitive) hard drive industry.

“Seagate is excited about the opportunity to achieve greater scale, reduce supply chain costs, and leverage combined R&D efforts across a broader product set. With the increased scale of the combined company, we can reduce overall product costs and provide more innovative products at more competitive prices,” said Bill Watkins, Seagate CEO. “We believe this is a strategic combination that will provide value for our shareholders as well as benefits for our customers.”

“Together, we will leverage our combined technical resources to deliver to our customers an even more compelling and diverse set of products, and get them to market more quickly and cost effectively,” said Dr. C.S. Park, Maxtor chairman and CEO.

There are a few key phrases in those quotes that point the way to channel changes for the Seagate-Maxtor hard drive monster. When the CEOs talk about the ability to ‘reduce supply chain cost’ and take products to market ‘more quickly and cost effectively,’ it is a pretty safe bet that consolidation of the distribution channel appears on the integration agenda. And this begs the obvious follow-up question: ‘Who’s in and who’s out?’

Tech Data and eSys look safe. Both distributors have global relationships with Seagate and Maxtor and will retain their distribution rights in my opinion. Seagate has so far made no real progress pushing retail-focused products to market in the Middle East. Bearing this in mind, both Jarir and Delta will also be feeling confident that their channel role remains assured. In fact, I would not be surprised to see the combined Seagate-Maxtor entity extending these relationships or even looking to appoint more focused retail distribution partners in the region.

The real potential for channel conflict appears to lie in the regional distributor category where Seagate partners Asbis, Mindware and Logicom line up against Maxtor’s dream team of Almasa and FDC. Would it make sense for a combined Seagate-Maxtor to maintain distribution agreements with all five partners? Probably not, despite the fact that each partner brings specific coverage advantages and channel reach benefits to the vendor that it currently represents.

Both Almasa and FDC have the ability to reach markets that other distributors cannot reach within the Middle East market and this strength has served Maxtor well. Logicom continues to have a reasonable grip on the Levant and Asbis has the ability to target parts of the CIS that other distributors struggle to cover. Mindware — a relatively recent recruit for Seagate — has been charged with boosting the vendor’s presence in Saudi Arabia where Western Digital remains the market leader by a country mile.

If anything, the Seagate-Maxtor merger will give the channel integration team the time, opportunity and the reason to really dig into the Middle East channel dynamics and understand exactly where each distributor is selling to and make decisions based on this research. Those regional distributors that want to stay on the Seagate-Maxtor distributor team sheet need to be on their best behaviour for the next six months.

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