History 2002: Hitachi/IBM HDD Drive Alliance Slowly Moves Forward

After the announcement by Hitachi and IBM of a pooling of the HDD drive activities on April 17, a few additional details were released on June 4 about the operations of the 2 partners.

The price for Hitachi’s acquisition of the majority of IBM’s HDD-related disk assets and IP portfolio was $2.05 billion.

At the same time, IBM said it plans to take a pre-tax charge of up to $2.5 billion for layoffs, sales of its HDD business and other restructuring measures.

The Japanese firm will initially own 70% of the new San Jose, CA-based company and will make a series of payments to IBM before assuming full ownership after 3 years, thus confirming IBM’s definitive exit from the business.

In any case, it has already been decided that IBM will no longer be involved in current operations. Dr. Jun Naruse, corporate MD of Hitachi, will be the CEO of the new firm, with Dr. Douglas Grose, who was GM of the IBM storage technology division, as COO.

Without going into detail, the joint press release also state that “certain IBM HDD operations are not include in the deal.”

Hitachi estimates the new company may deliver approximately $5 billion in sales in FY03, and will target annual sales of $7 billion by FY06. That seems quite optimistic, given the 2 partners’ current presence in the sector, and in light of a market currently in a static, if not declining, curve, as far as revenues are concerned.

According to a Japanese source, Hitachi shipped only 160,000 3.5-inch and 1.14 million 2.5-inch HDDs in its fiscal year ending last March.

We now officially know that IBM’s HDD business was severely in the red, which is hardly a surprise. Big Blue also disclosed that in 2001, for revenues of $2.8 billion, loss was $423. For 2002 only, IBM lost $92 million in this activity for only $415 in turnover.

Assuming Hitachi needs a couple months to sort all this out no announced reorganization in the 11 manufacturing facilities belonging to both firms, no roadmap for joint products, not even a name for the new entity things don’t augur well for the future of this alliance in an HDD drive industry where even several weeks’ delay can translate to catastrophe.

This article is an abstract of news published on issue 174 on January 2002 from the former paper version of Computer Data Storage Newsletter.