Western Digital to become dominant hard drive manufacturer with Hitachi acquisition

Western Digital to become dominant hard drive manufacturer with Hitachi acquisition

Business news |
By eeNews Europe

The proposed combination will result in a customer-focused storage company, with significant operating scale, strong global talent and the industry’s broadest product lineup backed by a rich technology portfolio.

According to IHS iSuppli, with its purchase of Hitachi Global Storage Technologies, Western Digital will pad its lead in the global Hard Disk Drive (HDD) market, giving it nearly double the market share of second top supplier Seagate Technology LLC. With the purchase, WD will claim 49.6 percent share of global HDD unit shipments based on fourth-quarter totals, compared to 29.4 percent for Seagate. This will give WD a lead of 20.2 percentage points over Seagate, up from a mere 2 points without the acquisition.

IHS iSuppli further contends that the Hitachi purchase will allow WD to enter the critical enterprise HDD segment. WD currently is only a marginal player in the enterprise HDD market, with nearly all of its sales going instead to the market for consumer drives, an area that includes products like desktop and mobile PCs, set-top boxes and video game consoles. Of all of the major HDD suppliers, Western Digital in the fourth quarter of 2010 had the smallest share of any company’s total shipments going to the enterprise segment, at less than 1 percent. In comparison, 65 percent of Seagate’s HDD shipments and 27 percent of Hitachi GST’s shipments went to the enterprise market.
“The enterprise HDD market garners significantly higher margins than the consumer segment, which makes the enterprise a fast-growing market for HDD revenue,” said Zhang. “To date, WD has largely been absent from the enterprise segment. However, Hitachi GST brings WD the essential technology, product portfolio and experience required to compete in the enterprise segment.” Hitachi GST offers both 3.5-inch and 2.5-inch HDDs with SATA and SAS interfaces, which are used extensively in the enterprise segment. The company has wide-ranging experience in this area, giving it the kind of track record required to win the confidence of enterprise customers, Zhang noted.

Under the terms of the agreement, WD will acquire Hitachi GST for $3.5 billion in cash and 25 million WD common shares valued at $750 million, based on a WD closing stock price of $30.01 as of March 4, 2011. Hitachi, Ltd., will own approximately ten percent of Western Digital shares outstanding after issuance of the shares and two representatives of Hitachi will be added to the WD board of directors at closing. The transaction has been approved by the board of directors of each company and is expected to close during the third calendar quarter of 2011, subject to customary closing conditions, including regulatory approvals. WD plans to fund the transaction with a combination of existing cash and total debt of approximately $2.5 billion.

WD expects the transaction to be immediately accretive to its earnings per share on a non-GAAP basis, excluding acquisition-related expenses, restructuring charges and amortization of intangibles.

The resulting company will retain the Western Digital name and remain headquartered in Irvine, California. John Coyne will remain chief executive officer of WD, Tim Leyden chief operating officer and Wolfgang Nickl chief financial officer. Steve Milligan, president and chief executive officer of Hitachi GST, will join WD at closing as president, reporting to John Coyne.

According to IHS iSuppli, the WD acquisition also may be a consequence of declining sales in the HDD market. HDD shipments in the first quarter of 2011 are anticipated to reach 160.9 million units, down 3.9 percent from 167.5 million in the fourth quarter of 2010. Shipments are being impacted by the rising sales of tablets, which don’t use HDDs and are cutting into the shipments of mobile PCs, a major market for hard drives. Other factors are affecting HDD sales as well, such as declining PC shipments in all major markets due to the growing use of cloud storage. Amid weaker industry conditions, organic sales growth is more difficult to achieve, prompting HDD suppliers to engage in acquisitions to gain market share.

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