IBM & Hitachi To Merge Hard Drive Divisions

by , 10:00 AM EDT, April 26th, 2002

IBM and Hitachi recently announced plans to combine their hard drive operations and create a separate joint venture company. In a related move the two have also agreed to a multi-year alliance to research and develop new technologies for next-generation storage.

The creation of the new company will include components from all levels of IBM and Hitachi's hard disk drive divisions, from research to marketing. Both plan to draw a majority of their future hard drive supplies from the spin-off. From the IBM press release:

Separately, and subject to the successful completion of negotiations and applicable regulatory processes, the joint venture will combine selected Hitachi and IBM disk drive assets, including employees, facilities and intellectual property. Both Hitachi and IBM expect to source a major portion of their HDD supply from the joint venture. The joint venture will be based in San Jose, California. The new company's management team is expected to include executives from both companies.

A large majority of the joint venture will be held by Hitachi with IBM being compensated for the assets they are providing.

Upon completion of negotiations, Hitachi is expected to hold 70 percent of the joint venture and make a payment to IBM for its HDD assets.

The consolidation is designed to benefit both companies by sharing development and manufacturing costs, reducing cost per unit as well as giving Hitachi a large affiliated source of hard drives for upcoming products.

"On the other hand, the disk drive industry is extremely competitive and coping with many issues," said [IBM senior vice president] Donofrio. "There, the winners will be companies that can combine true technical leadership with global economies of scale. That's what this joint venture is intended to accomplish."

Use of HDDs is expanding, not only in PCs, servers and RAID systems, but also in a wide range of emerging digital appliances. As such, it is a critical component in a broad range of important current and next-generation Hitachi products."

The two electronics giants are expected to release more detailed information about the alliance at a later date.

The Mac Observer Spin:

This is a surprising but potentially profitable move for IBM. Essentially IBM has sold off its hard drive design and manufacturing division but still keeps a source for the devices it needs in its other products as well as a cut of the sales. Hitachi doesn't fare badly either. It gains a cheaper source for hard drives plus the ability to custom design units for future products.

IBM