As of last week, when Western Digital’s proposed deal to buy Viviti Technology (formerly Hitachi GST) was finalized, the world has just three global suppliers of hard disk drives (HDDs). Western Digital, Seagate, and Toshiba control around 50%, 40%, and 10% of the market, respectively. The history of acquisitions in this space is fascinating, as shown by this diagram (courtesy of a great article on Wikipedia):

Admittedly, some fairly stringent conditions have been imposed by regulators on both Seagate and Western Digital for their latest acquisitions — including running separate operations for a number of years. But a market of up to 700 million HDD units per year (if you extrapolate from iSuppli numbers) is boiling down to just three suppliers. While solid state drives (SSDs) are manufactured by a whole range of firms, these will be too expensive for most applications and will have too low a storage capacity to match hard disks for the next 3 to 4 years.

What does the wider consumer technology industry gain and lose from this accelerated market consolidation?

Glass half-full:

• Stability. All three firms now have a steady volume business, decent balance sheets, and forecasts of healthy market growth for the next few years.
• Concentrated evolutionary innovation. The three firms will now provide a top-down focus for research into improving capacities, energy usage, and form factor. While there are some differences in capability — Western Digital has not yet developed hybrid drive technology, for instance — all are focusing on a continued supply of better and better conventional HDDs. This isn’t particularly sexy, but it is at least dependable.
• Consistency. Fewer manufacturers mean fewer variations in elements like controllers, cache, and software drivers, making the specification and manufacturing process somewhat easier.
• Better ‘partners.’ One additional benefit deriving from the previous three points is that firms in the position that Western Digital, Seagate, and Toshiba find themselves in often start making more of an effort to be proactive partners with their customers — allowing them to better understand client demands and needs to ensure that their competitors don’t get a foot in the door.

Glass half-empty:

• Reduced supplier competition. Obviously, all three firms will compete massively for market share, particularly Seagate and Western Digital; Toshiba is so far behind that it doesn’t stand a realistic chance of catching the top two. But where is the plucky little manufacturer targeting industry verticals? Who will force the pricing issue?
• Global supply chain risks. As we saw with the Thailand floods in October 2011, disruption in a manufacturing supply chain concentrated in one country or region can have a knock-on effect, although arguably it wasn’t as much of a disaster as many predicted — helped by generally lackluster PC and technology sales. Will the supply chain consolidate even further in China and Thailand now that just three firms control the purse strings?
• Suppliers with more power. Consumer technology manufacturers already have to deal with component-supplying titans like Microsoft, Intel, and Samsung; you can now add Western Digital and Seagate to that list.

Overall, these acquisitions show the natural (if somewhat accelerated) consolidation of a costly manufacturing industry that doesn’t necessarily deliver fantastic margins; those are, hopefully, reserved for the final device manufacturer. For the technology industry, the pluses probably outweigh the minuses; even in the worst-case scenario where competition decreases, SSD manufacturers will keep pushing the envelope and keep the HDD titans on their toes.