IBM, Hitachi To Merge Hard-Drive Operations, Form New Company

New $5 billion company to be majority-owned by Hitachi

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Hitachi and IBM have struck a deal to move both of their hard-disk drive (HDD) operations to a stand-alone company that would be mostly owned by Hitachi, with Hitachi paying $2.05 billion for IBM's HDD assets, the companies said in an announcement made Tuesday in Tokyo.

The new company would hit the ground running with sales of about $5 billion in fiscal 2003 and be staffed by 24,000 employees coming from IBM and Hitachi, the companies said. Hitachi will own 70 percent of the new entity.

The details of the plan--the foundation of which was laid in April when the companies forged a broad partnership in the HDD area--calls for the new company to be based in San Jose, Calif. It will be "managed by an independent team comprising executives from Hitachi and IBM's existing HDD operations," the companies said in a statement.

The as-yet-unnamed new company will be headed by Jun Naruse, Corporate Managing Director of Hitachi Ltd., and formerly CEO of Hitachi Data Systems, as its CEO. Douglas Grose, general manager of IBM's Storage Technology Division, will be COO of the new company.

Hitachi plans to select a board, and IBM will have no involvement in its operations, the companies said. They agreed to multiyear supply commitments from the new entity, they said.

As part of the deal, IBM will transfer 18,000 of its employees over to the new company, while Hitachi will bring 6,000. Immediately, the new company will be one of the largest--if not the largest--in its segment.

In its announcement, Hitachi said it expects the new company will reach the $7 billion mark in annual sales by 2006.

The HDD industry has been suffering through pricing pressures for more than a year, and the IBM-Hitachi deal is not the first big consolidation to hit the segment. Last year, desktop hard-drive maker Maxtor bought rival Quantum.

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