History 2000: One Less US HDD Rigid Disk Maker

In the rigid magnetic disk sector, the huge problems that arose in 1999 have forced several sizeable consolidations in USA.

After Komag acquired Western Digital’s disk business, and after TDK’s acquisition of Headway Technologies, now comes the merger of the 2 largest US independent rigid disk makers, Komag and HMT Technology, via an exchange of stock. Each issued and outstanding share of HMT stock will be converted into a .9094 shares of Komag stock, for a transaction estimated at $130 million according to industry analysts.

This merger closely resembles an acquisition, however, since T.H. Tan, CEO of Komag, will become the head of the combined company, while Ron Schauer, CEO of HMT, will be relegated to the sidelines of the new board. At the same time, Ron Buschur, president and CTO of HMT, will hold on to his title. The new board will count 3 members from HMT for Komag’s 6.

The big question remains whether the combined companies, each individually hurt in 1999 by the drop in prices and reduced demand, accumulating considerable losses and forced to scale back personnel and operations, will add up to a whole with improved odds for success.

If we look at their two most recent fiscal years, ending March 2000 for HMT, December 1999 for Komag, combined sales were $524.7 million for net losses of $361.6 million.

Together the companies shipped a total of 16.7 million disks for the quarter ended March 31, 10.8 million alone by Komag.

Their combined client roster is enviable, including Western Digital, Maxtor, Seagate, Iomega and Samsung.

HMT was more specialized in high-end disks, with its California plant, as illustrated by Maxtor’s recent qualification period ending of its 15.4GB 3.5-inch platters.

Komag has lower-cost manufacturing in Malaysia and a decent edge in low-cost 3.5-inch glass disk media.

The merger is expected to conclude during 3Q20.

Meanwhile, and still within the disk manufacturing sector, 2 other players, MMC Technology, a subsidiary of Hyundai Electronics, and Trace Storage Technology in Taiwan, a member of the Koo Group, have signed a letter of intent to merge.

3 questions to Mark Geenen, president og Trendfocus:
What’s the market share of both companies in the WW HDD market?
In 1999, Komag represented 19.7% of the OEM market, and 9.2% of the total rigid disk market. For HMT, these figures were respectively 13.0% and 6.1%.

Do you think the combined companies will have a dominant position, in terms of US Government approval, and that this could change the price situation in the future? I am not sure whether SEC will pay much attention to this or not, given the fact that captive suppliers have taken an increasing share over the last several years. Additionally Komag/HMT will position itself as a hedge vs. Asian dominance. On price, I am not sure. Prices are relatively stable now.
Do you interpret the merger as more like an acquisition by Komag of HMT?
Some of the US press wrote that it was an acquisition. Maybe so. However, I think it really is a merger, since it combines operations, management teams, and resources in a more cooperative way.

This article is an abstract of news published on issue 148 on May 2000 from the former paper version of Computer Data Storage Newsletter.