El Segundo (CA) - Seagate is approaching the finish line of the critical first year after its acquisition of Maxtor. The integration of its struggling competitor is proceeding on what appears to be a smooth pace and has allowed Seagate to extend its dominance in the hard drive market. However, other manufacturers were able to pick up Maxtor shares as well, and some even gained ground on Seagate.

Maxtor has begun to make sense for Seagate, as the purchase of the company not only has eliminated on mass-market competitor, but also has enabled Seagate to create an entry-level brand that competes in the mainstream market and protects the margins of the higher-end and premium-branded Seagate products. On the surface, it appears that the merger has worked out well for Seagate, at least in terms of market shares.

According to iSuppli, Seagate sold 33.1% of the 434.2 million hard drives that were shipped during the calendar year 2006. That share is up sharply from 28.7% in 2005. However, the 2006 number includes three quarters (Q2, Q3, Q4) of Maxtor hard drive shipments ; with Maxtor’s Q1 added in, Seagate ended up with 36.8% of the market for 2006. That number hands the company far-reaching control of the market, but it also means that market shares were lost to the competition along the way : For 2005, Seagate and Maxtor posted a combined market share of 42.8%. For Q1 2006, the last quarter that allowed iSuppli to break out Seagate and Maxtor shipment numbers, the combined share was about 40.9%.

The growth of Seagate’s and Maxtor’s hard drive shipments appears to have been flat year over year. iSuppli did not provide exact shipment data, but the market shares posted indicate that the separate companies shipped about 160.8 million drives in 2005 and about 159.8 million units in 2006.

Seagate’s key competitors were able to take advantage of what iSuppli calls a "market share vacuum" that was left over after the merger. From 2005 to 2006, Western Digital was able to grow its market share from 17.7% to 19.6%, Hitachi GST climbed from 15.5% to 16.1%, Samsung from 7.2% to 10.0% and Toshiba from 8.7% to 9.0%.

Overall, the hard drive market expanded by 15.5% from about 375.8 million shipped drives in 2005 to about 434.2 million in 2006. According to iSuppli, the hard drive industry not only saw growth in established computing markets, but saw also the rise of a new application : external hard drives. "In 2006, 2.6 million external hard drives were shipped, up 37% from 2005. Demand for external hard drives is being driven by the desire of consumers to store and backup large-sized video and audio files downloaded from Internet services," iSuppli said.

The Seagate/Maxtor was not the only challenge that emerged for the hard drive industry during 2006. According to the market research firm, the industry also faced shortages of glass media, along with minor shortfalls of other components near the end of the year. Demand slowed for 1" drives, as makers of MP3 players increasingly are turning away from rotating media and toward flash memory for music storage, iSuppli said.