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Western Digital buys Hitachi's disk division for $4.3bn

Deal to create dominant force in storage market

Western Digital announced today that it has entered into a definitive agreement to acquire Hitachi Global Storage Technologies (Hitachi GST), the disk drive arm of Hitachi Ltd, in a cash and stock transaction valued at about $4.3bn (about £2.66bn).

Western Digital is currently the leading supplier of hard disk drive technology, with about 31% of the market, followed by Seagate Technology with 29%. Hitachi GST's business represents about 18% of total hard drive units shipped, according to market research firm iSuppli. Once combined, Western Digital and Hitachi GST will thus hold a more dominant position over Seagate in the market.

The deal would give Western Digital, a company focused mostly on the consumer external hard drive segment, a fast entry into the datacentre internal disk drive space.

Under the agreement, Western Digital will pay $3.5bn in cash and transfer 25 million shares of common stock valued at $750m. The stock transaction means Hitachi Ltd will own about 10% of Western Digital shares outstanding. Two representatives of Hitachi GST will be added to Western Digital's board of directors.

In a conference call this morning, Western Digital CEO John Coyne said he expects the deal to close in the September quarter.

"This is a unique development in the 55-year history of the hard drive industry, in that it combines the resources of two of the world's most successful and most profitable hard drive companies," he said.

Western Digital and Hitachi are no strangers to disk drive division acquisitions. In 2003, Hitachi bought IBM's hard disk drive unit. However, it has not been able to make a profit on that business in light of what has been a significant drop in hard disk drive prices over the past decade. In 2007, Western Digital bought hard drive technology manufacturer Komag and in 2009, it purchased solid state drive manufacturer SiliconSystems.

In the conference call, Coyne admitted that history has shown that hard drive manufacturers tend to lose share value in the wake of industry consolidations as systems manufacturers look to "rebalance" their suppliers.

"It is our intent to work very hard now and in the future to deliver superior value to customers so that they will continue to reward us with their business," he said.

The resulting company will remain based in Western Digital's headquarters in Irvine, California.

Coyne will remain CEO. Steve Milligan, president and CEO of Hitachi GST, will join Western Digital as president, reporting to Coyne.

"This brings together two industry leaders with consistent track records of strong execution and industry outperformance," Milligan said in a statement. "Together we can provide customers worldwide with the industry's most compelling and diverse set of products and services, from innovative personal storage to solid state drives for the enterprise."

See also:

Western Digital reviews spotlight

Hitachi reviews spotlight

How to troubleshoot a hard-disk replacement


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