European regulators are going to take a closer look at two proposed mergers within the hard-drive industry due to concerns over how competition could be affected.
Joaquin Almunia, the European Commission's vice president for competition policy, is to look into two proposed mergers in the hard-drive industry. Photo credit: European Commission
Following a one-month review, two Phase II investigations have started into the proposed mergers, one of the hard-disk drive (HDD) division of Samsung into Seagate, and the other of Hitachi Global Storage Technologies into Western Digital. The investigations, announced on Monday, will try to work out if the deals could create an anti-competitive environment.
"Hard drives are the backbone of the digital economy," Joaquin Almunia, the Commission's vice president for competition policy, said in a statement. "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," he said.
Both investigations have a provisional deadline of 10 October. The Commission will study the Seagate and Samsung merger on its own, but will look at the Western Digital and Hitachi agreement in light of the Samsung-Seagate deal.
Five major HDD companies
There are five major HDD companies in the world — Seagate, Western Digital, Hitachi, Toshiba and Samsung — so if the mergers were to go ahead, this would leave three.
If Seagate were to take over Samsung's HDD business, then it would only face two competitors in the 3.5-inch drive market — Western Digital and Hitachi — or just one if their deal went through as well.
Seagate manufactures its own drive heads, unlike Samsung which sources them from the world's only independent supplier, TDK of Japan. If the merger went through, then the Commission is concerned that "this could in turn result in uncompetitive prices for heads and a weakening of TDK's ability to keep innovating".
Conversely, if Western Digital and Hitachi merged then they would face three competitors — Seagate, Samsung and Toshiba — in the 2.5-inch HDD market. Again, these could merge into two competitors if the Seagate-Samsung deal went through.
If both mergers were to happen, then the market for HDDs sold to third parties who repackage them in consumer devices would also be affected by the reduction in competing companies.
"[Western Digital] is co-operating fully with the EC in the Phase II review," the company said in a statement on Monday, noting that "it is proceeding, on plan, with its integration-planning activities associated with the proposed [Hitachi Global Storage Technologies] acquisition". At the time of writing, ZDNet UK had not received a statement from Seagate on the announced investigation.
If the mergers go through, then the two enlarged companies — Seagate and Western Digital — would control over 50 percent of the worldwide HDD market by units shipped, according to a Valdis Filks, a research director for Gartner.
Flash memory — solid-state drives (SSD) — is not factoring into the investigation, as the Commission believes that SSDs and HDDs operate in separate markets with different use cases and suppliers.
The Commission is currently engaged in two non technology-sector Phase II reviews, one looking at the acquisition of MWM Holding GmbH by Caterpillar, where both companies make infrastructure for power generation, and the other is the acquisition of Myllykoski and Rhein Papier by UPM, which are both in the paper production business.
An investigation of this nature is "par for the course" due to the size of the proposed mergers, Forrester analyst Vanessa Alvarez told ZDNet UK on Tuesday.
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