Why Seagate bought Xyratex

Xyratex spun out of IBM in the UK some two decades ago and they knew how to build quality products. They had two main product lines:

• Storage test equipment. Disk drives are incredibly complex devices and without excellent test equipment vendors would never know what they were producing. Xyratex is a top supplier of storage test equipment and will bring expertise that even Seagate will find useful.
• Storage enclosures and subsystems. Because disk drives are mechanical devices, mounting them is critical to reliable performance. Xyratex built the finest disk enclosures in the industry, popular with major vendors including NetApp and less major vendors like Microsoft's StorSimple hybrid cloud storage.

The Storage Bits take
Now that the disk drive industry is down to three players, the constraints that hampered innovation and vertical integration have disappeared. When there were eight disk vendors, they could be played off against each other. But with three, that is no longer realistic.

The disk drive vendors have finally found market power.

With the slow-motion collapse of the PC business, the best opportunity for disk vendors today is in external storage: SOHO, SMB and enterprise. The top consumer storage vendors -- LaCie, G-Tech, Iomega, and others -- have been mostly bought up.

But Xyratex is a step above the small consumer and SMB players. Seagate is now likely to start going after the Small and Medium Business market against other channel players.

Bottom line: this is a smart move by Seagate. They capitalize on their respected brand, increase their margins, and get more control over the end-user experience.

Expect to see more consolidation in the SMB market as Seagate integrates Xyratex. The weaker players will shift out and -- hopefully -- the rest of us will see higher quality and better service.

Comments welcome, as always. I worked with Xyratex folks in a couple of previous lives. Good group.