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You are here: Home / Hardware / Western D Buys Hitachi Storage $4.3B
Western Digital Buys Hitachi Storage for $4.3B
Western Digital Buys Hitachi Storage for $4.3B
By Jennifer LeClaire / CRM Daily Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
Western Digital on Monday announced an agreement to buy Hitachi Global Storage Technologies, a wholly-owned subsidiary of Hitachi, Ltd., in a cash and stock transaction valued at approximately $4.3 billion. If approved, Western Digital said the acquisition will create a customer-focused storage company.

John Coyne, president and CEO of Western Digital, said the acquisition of Hitachi GST is a unique opportunity for the company to create further value for its customers, stockholders, employees, suppliers and the communities in which the company operates. Indeed, Western D expects the transaction to be immediately accretive to its earnings per share.

"We believe this step will result in several key benefits-enhanced R&D capabilities, innovation and expansion of a rich product portfolio, comprehensive market coverage and scale that will enhance our cost structure and ability to compete in a dynamic marketplace," Coyne said.

From IBM to Western D

Hitachi purchased the majority of IBM's HDD-related assets for $2.05 billion in 2002, including the transfer of IBM's HDD-related intellectual property portfolio to the new organization. Hitachi fared well, then, in the disposition of the assets.

When Hitachi acquired IBM's HDD assets in 2002, it estimated the new company would drive about $5 billion in sales in fiscal year 2003, and would target annual sales of $7 billion by fiscal year 2006.

Coyne highlighted the skills and contributions of both workforces as key considerations in assessing the acquisition opportunity. Western Digital, he said, will be relying on the proven integration track records of both companies to make sure customer satisfaction remains high during the merger and the group ultimately succeeds. The company will offer personal storage and solid state drives for the enterprises, among other products.

"As the former CEO of Hitachi GST, I always believed in the potential of Hitachi GST to become a larger and more agile company," said Hiroaki Nakanishi, president, Hitachi, Ltd. "This is a strategic combination of two industry leaders, both growing and profitable. It provides an opportunity for the new company to increase customer and shareholder value and expand into new markets."

Hitachi's Good Timing

As Pund-IT Principal analyst Charles King sees it, the bottom line is this: the hard drive business has become a highly commoditized business where the profit margins have gotten thinner and thinner. The time was right for Hitachi to sell.

"The solid state part of the business truly constitutes the most potentially profitable higher margin sales, but Hitachi has decided that this part of its business would be better off with a storage specialist that wants to broaden its reach, like Western Digital, rather than being operated as a discreet business by the Hitachi Corporation," King said.

"On the Western Digital side, the company is getting a considerably larger and potentially more valuable product line up that includes consumer devices and probably also includes data center ready storage products."

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