UPDATE 21 December 2005, 3:42 pm ET

Scotts Valley (CA) - In a move which is estimated to give it as much as 45% of the worldwide storage market, Seagate Technology announced this morning it will acquire Maxtor, one of its leading rivals, for a stock swap valued at $1.9 billion.

This morning's news gives little indication that much of Maxtor's product line, management team, or heritage will be left behind. For each share of Maxtor common stock that shareholders currently own, they will receive 0.37 shares of Seagate stock. After the swap is completed in the second half of 2006 - pending US regulator approval - Maxtor shareholders will collectively own only 16% of the combined, new Seagate. The Maxtor name will also vanish, as apparently will most of its management, though Maxtor CEO Dr. C. S. Park will take a seat on Seagate's board of directors. Corporate headquarters will be located in Seagate's current home in Scotts Valley.

"I don't see technology as what's Seagate's getting in this deal at all," John Rydning, research manager for storage mechanisms at IDC told TG Daily. "They're getting other aspects. It's not a deal which gives Seagate technology that it was lacking."

According to the Bangkok Post this morning, a possible relocation of Seagate's manufacturing focus to China could threaten its current Thai facilities established in 2000, where the company had once employed as many as 50,000, but which has since scaled back to one-third that number.

In March of this year, Maxtor announced it was scaling back its manufacturing operations in Singapore to open new facilities in China. Now, with the Chinese facility online, and despite manufacturing glitches that contributed to the withdrawal by Maxtor of lower-capacity hard drives from the market, Seagate will apparently be reaping the benefits of Maxtor's investment.

"If you look at the industry overall," said Rydning, "[it's] quite fully utilized for the volumes that the industry is shipping today." Maxtor's launch of its China production facility would have given the company output capacity. Although Maxtor desperately needed that capacity to start regaining lost market share, Rydning believes Seagate's interest may have had more to do with cost reduction...and something else. With customer demand remaining high, he says, it may be premature to conclude that Seagate would cut back any more operations in Thailand and elsewhere.

"One of the elements that Seagate gets in this deal," Rydning told TG Daily, "is some [manufacturing] capacity that they either would have had to add themselves, or go somewhere else to acquire... I think we need to give Seagate some time to look at their entire infrastructure, and rationalize which pieces of their infrastructure they're going to want to keep. The more important issue is that, what they do is prevent this capacity from going to a competitor."

In a statement this morning, Seagate said it expects its earnings to rise between 10% and 20% in the first 12 months of operation as a combined company, over Seagate's current earnings level. The estimate, notably, did not encompass Seagate's and Maxtor's combined current earnings, and warned, "As with other past combinations of disc drive manufacturers, revenue attrition is anticipated to result from this combination." The statement probably indirectly referred to Maxtor's 2001 acquisition of Quantum, whose resulting "revenue attrition" did not gain that company any ground, or "scale," in its bid to become the leading hard drive manufacturer. In fact, Maxtor has been struggling over the past two years, having posted a $190 million loss last year, and having lost estimated market share to Seagate and Western Digital already. Only 2000 and 2003 have been profitable years for Maxtor in the past decade.

According to Maxtor's most recent quarterly statement, the company is active only in the enterprise and desktop market segments. The firm sold about 975,000 drives to enterprise customers and about 12.2 million drives to desktop customers during the third quarter of 2005. Compare these figures to Seagate's 3.1 million enterprise drives and 17.4 million desktop drives in the same time frame, in addition to 2.4 million mobile hard drives, and 3.9 million units into the CE market.