Seagate closes acquisition of Xyratex, expects its sales to drop sharply

|About: Seagate Technology (STX)|By:, SA News Editor

Seagate's (STX) $294M purchase of hard drive equipment/storage subsystem maker Xyratex (XRTX), announced on Dec. 23, is officially on the books.

With Xyratex's third-party hard drive equipment clients likely to start looking elsewhere, the business is expected to produce just $500M-$600M in revenue during Seagate's FY15 (ends July 3, 2015), and be neutral to EPS during the year. Xyratex had revenue of $814.3M and EPS of $0.15 during its FY13 (ended Nov. '13).

Analysts have argued Xyratex rival Teradyne (TER) will benefit from the deal, as Western Digital/Toshiba step up their orders.

Opinions have been mixed on whether the deal is a smart move for Seagate: Those who like it think Seagate's hard drive manufacturing ops and /R&D will benefit from further vertical integration, and see a major opportunity to sell Xyratex's ClusterStor systems to Web/cloud providers. Those who don't are worried about channel conflict with both hard drive equipment buyers and Seagate's storage OEM clients.