Western Digital buys Hitachi hard drive unit

Western Digital, the leading hard drive maker, is buying industry number three player Hitachi Global Storage Technologies in a $4.3bn deal as the sector faces increasing competition from new methods of storage used on devices such as the iPad.

The acquisition of the Hitachi division will also strengthen Western Digital’s position in the enterprise market – a growth area as companies and consumers store more of their information in the data centres of the internet’s “cloud”.

Western Digital shares rose 13 per cent on the news to $33.95 in midday trading in New York on Monday, while those of its close rival Seagate rose 10 per cent to $13.69, as the markets interpreted the consolidation as increasing profitability for the few players that are left

Western Digital seized the number one position from Seagate last year and, with the addition of Hitachi, will have about a 49 per cent market share. Other players, with around 10 per cent of the market each, are Toshiba/Fujitsu, which merged in 2009, and Samsung.

John Coyne, Western Digital chief executive, told the Financial Times that the deal should not give rise to competition concerns. “The remaining three competitors are very large, very capable and in sound financial shape, and Toshiba and Samsung are hard drive divisions of very large corporations,” he said.

Hitachi had bought IBM’s hard-drive business in 2002, but it is no longer a focus of the Tokyo-based conglomerate and accounts for only 5 per cent of revenues. “Twenty years ago, there were 86 companies in this industry, today we’re heading to
four – it’s a tough business and you have to address it with the right business model,” said Mr Coyne.

People familiar with the deal suggested that antitrust should not be a concern in
what is a highly competitive market. They added that the pair had a much lower share of the market for selling storage systems to large corporations – the most profitable section of the industry.

On the consumer side, increasing sales of tablet devices at the expense of netbooks, which use conventional hard drives, is contributing to a 4 per cent decline in hard-disk drive (HDD) shipments to 161m units in the first quarter, according to estimates last week from the IHS iSuppli research firm.

“Tablets like Apple Inc.’s iPad represent a major threat to HDD demand,” said Fang Zhang, analyst for storage systems at IHS. “And as tablet adoption gains momentum, netbooks will suffer even greater declines.”

Western Digital will pay $3.5bn in cash and Hitachi will receive 25m Western Digital shares. Bank of America advised Western Digital on the deal, while Goldman Sachs advised Hitachi.

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