Toshiba Acquires Fujitsu’s Hard Drive Business

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Toshiba said yesterday it will acquire Fujitsu’s hard disk drive business in a deal that will make Toshiba a major player in the HDD market and let Fujitsu shed a money-losing business.

Toshiba isn’t as well known in the storage market as it is for its chip and memory products businesses, but it does have a presence in the sector. The purchase will put it on a collision course with established players Seagate Technology (NASDAQ: STX), Western Digital (NYSE: WDC) and Hitachi Global Storage Technologies.

One plus for Toshiba is that while it’s not a big storage vendor, it already has established business in two hot areas: notebooks and the Apple (NASDAQ: AAPL) iPod. Fujitsu also has a notebook business, so between the two, Toshiba will own a healthy portion of the notebook storage market.

On the downside, Toshiba is heavily in debt and is facing losses on its chip business, according to Reuters, and a price has not been set for Fujitsu’s hard drive operations. It’s believed to be in the “hundreds of billions” of Yen, which would make it a billion or multi-billion US dollar deal.

Fujitsu’s hard drive operations are expected to post an operating loss of 25 billion yen (around US$271 million at current exchange rates) and a group net loss of 50 billion yen (US$542 million) for its fiscal year ending in March.

The deal is expected to close at the end of March, assuming Toshiba can arrange the credit necessary to make the deal happen, according to Scott Maccabe, general manager and vice president of the Toshiba Storage Device Division.

Maccabe sees a chance for new products and new markets with both firms under the same roof. “Fujitsu is a well-established as an enterprise player,” he said. “From a strategic perspective, this plays for us as an opportunity to broaden our total product line and for us to utilize some of the synergies that exist within the Fujitsu organization across lines.”

Solid State Drives Coming

With the combined storage expertise of the two firms, plus Toshiba’s memory products, Maccabe sees an opportunity in solid state drives (SSDs) that was not there before. The semiconductor group at Toshiba tried its hand at SSDs and realized they were in the wrong space.

“We’re going to take our enterprise experience and knowledge and meld it with hard drive experience and marry it up with NAND flash experience, and pull those together to develop a solution,” he said.

There can also be expansion into the enterprise space, faster rotation drives and larger capacity drives as well. Fujitsu has around 8,000 employees in the storage business, and Maccabe doesn’t foresee large scale layoffs.

The match should be a good one since both firms are Japanese. “If you were to look at the different mergers in storage, this should be the most synergistic one. The corporate cultures are very similar between both companies,” said Maccabe.

Indeed, Western Digital had been looking at Fujitsu’s business but decided to pass, opening the door for this deal. Krishna Chander, senior analyst for storage industry analysis at iSuppli, thinks that’s a good deal for everyone.

“Western Digital [buying Fujitsu] would have been a problem, a cultural issue,” he said. It would have made WD, the biggest hard drive maker in the market, even more dominant, but at a cost. “The upside would have been more market segments, the downside was cultural. So maybe it works out better for both companies.”

Chander said that the two firms’ notebook business will probably have some overlap, but it’s a good steady business. The real challenge will be managing other segments. “Toshiba will be a newcomer to the enterprise, which is a lot different than selling to notebook OEMs. The enterprise OEMs are a lot more finicky about absorbing anything new. There’s a lot more testing that goes on. So they better hold on to the enterprise guys from the Fujitsu side.”

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