Hitachi goes solo to turn hard drive business around

Computerworld - Japan's Hitachi Ltd. has dropped plans to sell a stake in its troubled computer disk drive business and aims to turn the business around by going after market share and cutting costs, the head of the unit said today.

Hitachi's determination to go it alone comes two days after Seagate Technology's outlook, hurt by price falls, missed expectations and sent its shares plummeting.

Hitachi, the world's No. 3 maker of hard drives, last month broke off talks with U.S. private equity firm Silver Lake on bringing in fresh capital after the unit swung to a profit in October-December even as credit markets soured for funds, sources earlier told Reuters.

"We've talked to Hitachi [head office] and made a final decision. We have concluded that we will rebuild the business on our own," Hiroaki Nakanishi, head of the unit, Hitachi Global Storage Technologies, told a news conference.

But Nakanishi added that he would not completely rule out the idea of outside capital a few years down the line.

"In this quickly changing market, you sometimes need to be able to spend a lot on research and equipment, to be able to grab market share," he said.

Capital expenditure at the unit, which Hitachi bought from IBM in 2002, was likely to be around 6% to 9% of sales this year, while research and development would be about 10% of sales, he said.

Senior executives at parent Hitachi said this month that they would not be averse to resuming talks with private equity funds, once fears about the credit markets ease.

"It's not just about cash. These funds also have management know-how that we need when two differing business cultures like Hitachi and IBM come together," a senior executive said, asking that his name not be used as the issue was still being considered.

Hitachi's hard-drive unit has set a target for an annual operating profit in 2008, swinging from a $381 million loss the previous year, by pursuing high-volume sales in its hard drives for notebook PCs while strengthening distribution channels for its desktop hard drives and servers.

The business, helped late last year by tight supply that nearly tripled profit at Seagate and Western Digital Corp., posted a $95 million profit in October-December, compared with a loss of $93 million a year earlier. It was the unit's first quarterly profit in two years.

The unit aimed to cut costs by roughly 13%, Nakanishi said.

Hitachi Global Storage Technologies has not once posted an annual profit in the five years since Hitachi acquired it.

Read more about Storage Hardware in Computerworld's Storage Hardware Topic Center.