Western Digital Acquires Hitachi Storage

In a landmark storage industry deal, Western Digital (WD), the world’s number one-selling hard disk drive (HDD) manufacturer, is acquiring competitor Hitachi Global Storage Technologies in a cash and stock transaction valued at approximately $4.3 billion (£2.7bn).

The deal was reported as $3.5bn (£2.2bn) in cash and 25 million WD common shares valued at $750 million (£463m). The latter was based on the WD closing stock price of $30.01 (£18.53) on 4 March 2011.

The resulting company will retain the Western Digital name and remain headquartered in California, US. John Coyne will continue to serve as chief executive officer of WD, with Tim Leyden as chief operating officer and Wolfgang Nickl as chief financial officer. Steve Milligan, president and chief executive officer of Hitachi GST, will join WD at closing as president, reporting to Coyne.

‘Massive transformation’ in HDD business

In June 2010, WD overtook Seagate in unit shipments with a market share of 31 percent versus 29 percent for Seagate, which had dominated that metric for several years. WD has maintained that edge since then. Nonetheless, Seagate’s revenue market share is slightly higher than WD’s due to a more diversified portfolio, especially in the enterprise segment.

The acquisition news follows recent industry reports of a boom in NAND flash sales for solid-state devices such as Apple iPhones, iPads, Android-type phones/tablets, and others. Other market reports have shown a nosedive in sales of HDD-driven netbooks, laptops and desktop PCs during the last 12 months.

“The disk drive business is going through a massive transformation,” Brian Babineau, vice president of research and analyst services at Enterprise Strategy Group, told.

“PC shipments are down, thanks to iPad and tablets (using Flash). Servers are being consolidated – thanks to VMware, Microsoft, and Citrix. And enterprise storage system suppliers are evaluating solid state disk drive and other flash technologies.”

As the drive companies are competing for volume to achieve scale, there was no question that there needed to be consolidation; it was more of a matter of who was going to be the consolidator, Babineau said.

“HGST [Hitachi Global Storage] has innovated reasonably well across drive components and has a well-established presence in the enterprise (servers, storage systems) markets,” Babineau added.  “Western Digital was making significant progress in attacking those enterprise markets, and now they can do it faster while improving scale.”

When the deal is completed, Hitachi will own approximately 10 percent of Western Digital shares outstanding after issuance of the shares and two representatives of Hitachi will be added to the WD board of directors at closing.

The transaction has been approved by the board of directors of each company and is expected to close during the third calendar quarter of 2011. WD plans to fund the transaction with a combination of existing cash and total debt of approximately $2.5 billion.