WD Deals With Toshiba to Satisfy EU Regulations

Toshiba Corporation has entered into a definitive agreement with Western Digital Corporation on Toshiba’s acquisition of certain of Western Digital’s 3.5-inch HDD manufacturing equipment and related intellectual property, and the transfer to Western Digital of Toshiba Storage Device (Thailand) Co., Ltd. (TSDT), Toshiba’s wholly-owned HDD manufacturing subsidiary located in Thailand.

Toshiba and Western Digital aim to complete the acquisition and transfer by March of this year after obtaining approval from the relevant authorities.

Under the agreement, Toshiba will acquire the following equipment and intellectual property from Western Digital:

Manufacturing equipment for 3.5-inch HDDs for use in desktop PCs and other consumer applications, plus related intellectual property; and
Manufacturing equipment for near-line HDDs for server applications.

Toshiba also has agreed to transfer to Western Digital its entire shareholding in TSDT.

Toshiba’s acquisition of assets from Western Digital and the transfer of TSDT to Western Digital are subject to Western Digital’s completion of its pending acquisition of Hitachi Global Storage Technologies and regulatory approvals from the relevant antitrust authorities.

The global market for HDD and other storage devices is expected to see sustained demand growth, driven by the continued diversification of devices requiring storage, including PCs, tablets and smartphones, and the explosive increase in data storage and archiving that will accompany cloud computing.

Toshiba acquired Fujitsu Limited’s HDD business in 2009, expanding its product portfolio of small form factor HDDs for mobile applications with Fujitsu’s enterprise HDDs. Since then, the company has developed a line-up of storage products for enterprise applications. More recently, in July 2011 Toshiba unified the Semiconductor Company and the Storage Products Company, covering NAND flash memories, SSDs and HDDs, and is now positioned to carry out coordinated sales promotions to a wide range of customers.

The purchase of part of Western Digital’s 3.5-inch HDD manufacturing equipment and with it the capability to produce 3.5-inch HDDs for desktop PCs, DVR and other consumer applications, will expand Toshiba’s portfolio and enable the company to supply products covering all segments of the HDD market. It will also expand Toshiba’s supply capacity in the market for near-line HDDs, which is expected to expand with the continuing growth of the server market, further reinforcing a strategic segment of the company’s HDD business.

Toshiba will transfer the shares of TSDT to Western Digital and consolidate HDD production at its two HDD manufacturing facilities in the Philippines and a contract manufacturer in China. A key goal is to further enhance cost competitiveness by boosting manufacturing efficiency.

Following the reinforcement of its HDD businesses through this re-organization, Toshiba aims to establish itself as ta leading provider of integrated storage solutions – the company that has all three key storage solutions: NAND flash, SSD and HDD.

Outline of Toshiba Storage Device (Thailand) Co., Ltd.

Address: Pathun Thani, Thailand
President: Minoru Iriko
Established: October, 2009
Paid-in capital: 1 billion baht
Main business: Manufacture of 2.5-inch HDD
Employees: About 4,200

Comments

The most important consolidation in the history of HDD industry is not far to be completed resulting in only three HDD manufacturers in the world. Seagate has definitively acquired Samsung HDD business and the acquisition of Hitachi GST by WD is not far to be done following this transaction.

In November 2011, the EU approval for the deal was "conditional upon the divestment of essential production assets for 3.5-inch HDDs, including a production plant, and accompanying measures. Western Digital cannot complete the acquisition of Viviti [new name for Hitachi GST] until it has found a suitable purchaser that is approved by the Commission."

Toshiba was largely rumored to be the acquirer of this WD's desktop and CE activity. It's done. But it's a transfer of activity and WD didn't sell any part of its manufacturing plants. On the contrary it buys Toshiba Storage Device (Thailand) Co., Ltd. (TSDT) in Pathun Thani, Thailand. This business was supposed to transfer production in China and the Philippines because about all its equipments were under the flood. The price to be paid by WD to get this damaged facility is probably very low and the acquired WD's 3.5-inch activity by Toshiba will move in one of these two countries.

WD states:" TSDT manufactured hard drives but has not resumed operations after the recent Thailand flooding. The principal assets of TSDT are its Thailand property, facilities and employees. Subject to completion of the transaction, WD plans to integrate these facilities and employees into its Thailand operations."

Australia also approved WD/Hitachi GST's deal with same conditions Europe imposed. Japan also OKed the acquisition with, among conditions, to sell 10% of its 3.5-inch HDD production. We are now waiting for the China's decision considering that this country estimates that this operation will hurt competition. This deal with Toshiba will help but will it be sufficient?

For WD, the difficulty will be now to definitively complete the acquisition of HGST at the end of March, the deadline officially announced.

There will be finally only three HDD makers remaining, Seagate, WD and Toshiba, each one with a complete line of products for a possible better competition: notebook, desktop and enterprise units.