patrick.net

This deal results in large part from Western Digital and Seagate being allowed to consolidate the hard disk drive market into a duopoly, and thus raise prices and profits.

Notice that the higher profits do not necessarily go back to investors as dividends. [Update 2015.10.23: in the specific examples of STX and WDC, dividends have increased dramatically, so congratulations to the investors; the broader point remains though, because dividends are decided by corporate boards and are not tied directly to profits.] The higher profits go to executives and Wall Street in acquisition dealmaking. The executives use cheap money to load up on debt, build bigger empires for themselves, and further enrich the FIRE sector.

Notice also that the higher profits do not result in more R&D. To the contrary, consolidation enables the executives to reduce costs, e.g. engineering. As the consulting chief executive of International Business Strategies reportedly said: “With the low cost of money, it’s much better to make an acquisition than develop new products.”

Customers pay more and get less. Ordinary investors might see gains in their SNDK strock, offset by corresponding losses in their other stocks, as the real benefits flow mainly to executives and Wall Street.

:) thanks Obama!

Your just upset that you didn't buy WDC or STX stock when they were cheap.

zzyzzx says

Your just upset...

My just upset results from the fact that HDD prices increased and reliability decreased for the first time in the history of the industry, and prices remain elevated even now. You're consistent or persistent in saying what you've said, and you do have a point in that I would probably feel differently if I'd bought STX and WDC specifically (instead of indexes that include them and their customers), but your position surprises me for two reaons:
1) usually, you don't like having to overpay for things;
2) usually, you don't defend the policies of the current Presidential administration.
The consolidation by STX and WDC was challenged and partially thwarted by governments in Europe (where customers were hurt by having to pay more) and Asia (where manufacturers were hurt by having fewer customers). That's why European and Chinese regulators required WDC to sell part of Hitachi Global Storage to Toshiba, which maintained some slight competition in the 2TB HDD market. So, as patriotic Americans, perhaps we should join DFJ in thanking President Obama: two American companies profited disproportionately at the expense of all consumers, most of whom live elsewhere, and at the expense of Asian manufacturers (in addition to American PC manufacturers). I hope STX and WDC paid tax on the increased profits, instead of offshoring them in foreign tax havens, but the financials of both STX and WDC show less than 10% tax rate even on their dramatically higher net iincome. Within the USA, the consolidation has helped senior executives, advertising agencies, and Wall Street, all of whom tend to live in cities that vote blue; it has hurt people who work in manufacturing, who tend to live in red states. So, President Obama wins again. I do respect that success, even though higher disk prices cost me $, and even though higher disk failure rates cost me time.

curious2 says

My just upset results from the fact that HDD prices increased

The last HD I bought was a couple of weeks ago. It was 500GB for $50 bought locally. The one before that was 60GB for $100 Seems to me that hard drives are cheaper. It's not like they have no competition, you can only charge so much for a hard drive when people can buy a SSD instead. So at least at the consumer level, prices are being held down.

IMO, STX and WDC are buy's even at today's prices. Yes, I did buy them when they were cheap. They also pay a decent dividend and neither one is likely to go away any time soon.

Ironman says

It's almost impossible to get any product to the end of the warranty period before they crap out today!

My $100 60GB hard drive I references is an IDE drive. It's at least 15 years old. My car is 20 years old and has 223K miles on it.

Any comments on the EMC acquisition by Dell? I especially like this quote from Marius Haas: The value of having Silver Lake (the private equity firm that co-owns Dell) in the mix is enormous. The creativity they have in crafting financial structures is incredible.

Ironman says

There you go... They don't build stuff like that anymore..

Actually when the WD HD in my DVR crapped out on it (exactly when i was 3 years old, of course), I replaced it with another old IDE one made my Seagate, since the original DVR manufacturer used drives from both companies. The Seagate one is over 4-5 years old now and not giving me any problems. Way past any warranty issues. in so far as the car, it's a Ford Escort, and those things are like the energizer bunny in that they keep going and going.

zzyzzx says

The last HD I bought was a couple of weeks ago. It was 500BG for $50 bought locally.

Wow, what's a BG? You wrote it again in another comment. Anyway, assuming 1BG=1GB, the prices reversed at the time of the consolidation and remain elevated compared to their prior trend line. If you compare to something you bought a decade ago, you're conflating the period of price drops prior to the consolidation with the period since. It's sufficiently obvious that I wondered why you even posted it, but whatever.

zzyzzx says

you can only charge so much for a hard drive when people can buy a SSD instead.

SSD price per GB, or "BG" if you prefer, is 10x higher, and now the HDD manufacturers are beginning to use their HDD pricing power to make inroads into SSD also. That is why antitrust regulation looks specifically to see if a monopolist is abusing its monopoly in one sector to take over another (e.g. Windows vs Netscape). If the HDD duopoly takes over the SSD market also, then the same pattern might recur: any excuse to raise prices, then keep them elevated.

Anyway, I'm glad you did well with STX and WDC, and I hope you'll thank President Obama for that since you blame him for so many other things.

Ironman says

It's almost impossible to get any product to the end of the warranty period

Following consolidation, HDD manufacturers took advantage of higher failure rates by shortening their warranties and charging extra for extended warranties. With no real competition, consumers had to guess which evil seemed lesser. I hope they won't also turn drive failure into a revenue model in the SSD sector.

zzyzzx says

IMO, STX and WDC are buy's even at today's prices. Yes, I did buy them when they were cheap. They also pay a decent dividend and neither one is likely to go away any time soon.

I told you guys to buy this stock....

http://www.thestreet.com/story/13336491/1/seagate-technology-stx-stock-jumps-on-integration-of-samsung-hdd-business.html

Seagate Technology (STX) Stock Jumps on Integration of Samsung HDD Business

NEW YORK-- Seagate Technology (STX) stock is gaining 4.99% to $41.20 in midday trading on Friday after the company received clearance from China's Ministry of Commerce (MOFCOM) to integrate Samsung's (SSNLF) hard disk drive business into Seagate.

The data storage company acquired Samsung's HDD business as part of a broader transaction worth about $1.4 billion in cash and stock that closed in December 2011.

MOFCOM, however, required Seagate to allow its customers to buy from other sellers, as well as not require TDK China (TTDKY) to sell HDD heads exclusively to Seagate.

"We were pleased by the constructive dialogue we had with MOFCOM throughout this process, which reflects in part our strong long-term presence, significant ongoing investment, and deep relationships in China, and we look forward to finalizing the integration of Samsung's HDD business," Seagate CEO Steve Luczo said in a statement.

Seagate will announce its fiscal 2016 first quarter financial results on October 30 before the market open.

Separately, TheStreet Ratings team rates SEAGATE TECHNOLOGY PLC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate SEAGATE TECHNOLOGY PLC (STX) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its respectable return on equity which we feel is likely to continue. At the same time, however, we also find weaknesses including unimpressive growth in net income, poor profit margins and weak operating cash flow.

curious2 says

f the HDD duopoly takes over the SSD market also, then the same pattern might recur: any excuse to raise prices, then keep them elevated.

!. That was a spelling error.
2. My own personal example I was paying half the price, in non-inflation adjusted dollars for roughly 8X the capacity. How is that more expensive???
3. The SSD market is going to get commoditized eventually (at least to some point moreso than it is now), but unlike in the HDD market, I don't see it being a duopoly. The difference being that the actual memory chips have to come from someplace, and that someplace is another company besides WDC and STX that other people can and will continue to buy from. So unless WDC and STX start making their own memory chips for SSD's, I don't see this changing.

zzyzzx says

What part about recommending this stock before all of this didn't you understand?

Where did you recommend this stock before all of this happened? STX and WDC consolidated the HDD market into a duopoly in 2011. Their intent to do so became evident in 2010, but regulators' intent to allow it didn't become clear until later.

zzyzzx says

How is that more expensive?

Prior to consolidation, HDD prices followed Moore's Law. For more than half a century, capacity increased 4x at the same price point every three years. After consolidation, prices increased, and remained elevated compared to the prior trend. The CEOs actually admitted that they were throttling manufacturing in order to restrict supply and keep prices high. As a shareholder, you should know that. I linked to it in the OP from the previous thread.

zzyzzx says

unless WDC and STX start making their own memory chips for SSD's, I don't see this changing.

That's the point of this thread: they are starting to buy the flash memory makers, e.g. SanDisk.

Look, I'm happy that you did well on STX and/or WDC, but some of your comments read like an SF landlord praising SF zoning&planning restrictions and saying people can live in a van, or a shareholder in PhRMA or a hospital corporation praising Obamacare, or a Saudi praising OPEC. Anyone who bought PhRMA&AHA stocks when Scott Brown got elected and Obamacare was considered DOA, and held the shares through the signing of the legislation, doubled their investment in less than a year. I would hope that they could at least retain some objectivity, though I did notice that some of them didn't seem to.

I updated one of my earlier comments though, to concede a significant point with regard to this particular example. Both STX and WDC have increased their dividends dramatically since consolidation enabled them to increase profits. In general though, corporate boards and CEOs can and often do retain higher profits and use them to build empires for themselves at shareholder expense. (They can also continue dividends even as profits are falling or disappearing.) I should acknowledge that STX and WDC have not done that, and I'm sorry for not acknowledging it sooner. You took a risk in trusting the boards and CEOs of those companies to do what some others have chosen not to do, and they rewarded you for that, and so congratulations (sincerely) all around. The larger issue remains though: the profits resulted from corporate and financial innovation rather than R&D, with customers paying more for less, R&D can get cut to "improve" cost structure, enriching the dealmakers at the expense of everyone else. At least in this instance you got your share, and that's good, but everyone else can still find plenty to vent about.