Why Toshiba is buying Fujitsu's HDD business

With the acquisition of Fujitsu 's hard-disk drive (HDD) business, Toshiba would position itself to become a leading contender in the enterprise-class solid-state disk (SSD) drive market, as well as initially leap to the head of the pack in the 2.5-inch HDD space, say industry observers.

Toshiba to acquire Fujitsu's hard-disk drive business
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Toshiba and Fujitsu said today they had signed a provisional agreement under which Toshiba will acquire 80% of Fujitsu's hard-disk drive business . The deal is expected to close during April.

Fujitsu said it would hold onto 20% of its hard drive business for a not yet determined period of time to smooth the transition of the business to Toshiba, which will make it a subsidiary.

Fujitsu is a leader in enterprise-class 2.5-inch HDD market, as well as in mobile devices.

The fast growing 2.5-inch drive marketplace includes Hitachi, Seagate, Western Digital , Fujitsu, Toshiba and Samsung. Fujitsu ranks third in number of units shipped, ahead of Seagate, says Tom Coughlin, an analyst with Coughlin Associates.

Last year, Fujitsu shipped 38.6 million 2.5-in HDDs. Only Hitachi, with 50.4 million, and Western Digital, with 50.3 million, lead it. Toshiba followed Fujitsu with 34.5 million, and Seagate trailed with 29.8 million units shipped.

Let's make a deal

Western Digital Corp. had been in talks with Fujitsu to buy its HDD business. That deal was estimated to be worth $945 million. The value of Toshiba's Fujitsu buyout was not disclosed.

Coughlin and Gregory Wong , an analyst with the research firm Forward Insights, said the deal between Western Digital and Fujitsu fell through because there was not cultural synergy between the two companies, and because converting U.S. dollars with Japanese Yen would have made a buyout more difficult. Both analysts speculated that Japan's government may have helped broker the deal between the two native companies.

While a leader in the hard disk drive market, Fujitsu has been loosing money on its products because its cost to produce drives are too high, Coughlin said. "It has some similarities to the issues Hitachi has having. They had a high cost structure for building drives, which put them at a disadvantage to a Western Digital or Seagate."

Toshiba, on the other hand, has been profitable in the HDD marketplace for the past 30 years. This year will be its first unprofitable year, the company said.

With the acquisition of Fujitsu's 2.5-in HDD business, Toshiba, which sells its hard drives mainly into the consumer laptop marketplace, will effectively be catapulted into first place in unit shipments, Coughlin said. And, with Fujitsu's 20% to 25% share of the enterprise 2.5-inch HDD space, Toshiba gets an instant business customer base.

Scott Maccabe, general manager of the Americas for Toshiba's storage business, said, "We have been investigating entering the enterprise space for some time. We did our due diligence of what it would take to expand our market share. The logic made it more reasonable for us to acquire that rather than develop it in-house." "It really lines up from a strategic as well as tactical perspective for us," Maccabe said.

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