February 27, 2009 -- The hard disk drive (HDD) manufacturer ranks will be winnowed down by one with Fujitsu’s announcement that it will sell its HDD business to Toshiba. The deal is expected to close in June, and financial terms were not released. (At first, Toshiba will own 80% of the joint venture and Fujitsu will own 20%, but it will eventually be owned 100% by Toshiba.)
It’s only fitting that the contraction and consolidation in the storage industry has filtered down to the disk drive level. Who would want to be in this business, anyway? Razor thin margins, constant price gouging, competition from solid state disk (SSD) drives, and the need to double capacity and support new interfaces every 18 months, etc.
Toshiba has a tough integration challenge (remember Seagate’s acquisition of Maxtor?), but it will eventually lead to solidification of its leadership position in small form factor (2.5-inch and smaller) drives, as well as giving the vendor entry into the high-margin enterprise-class drive market. It’ll also boost Toshiba’s SSD prowess via the possible combination of Toshiba’s NAND flash memory technology and Fujitsu’s enterprise HDD technology.
But the real winners here, at least in the short term, will be Seagate, Western Digital and, perhaps to a lesser degree, Hitachi GST. Those players will almost definitely gain immediate market share due to attrition during the integration process. (Seagate experienced about a 50% revenue attrition during its acquisition of Maxtor, according to Robert W. Baird and Co., although that was admittedly a buyout on a much larger scale.)
For those of you who are insane enough to trade stocks in the volatile disk drive industry, take a close look at Seagate and WD.
posted by: Dave Simpson