Hitachi buys IBM's hard drive business for $2B

IBM Corp. and Hitachi Ltd. have reached a final agreement to combine their hard disk drive (HDD) units into a new company majority owned by Hitachi, the two companies announced Tuesday.

Hitachi plans to purchase the majority of IBM's HDD-related assets for US$2.05 billion, including IBM's HDD-related intellectual property rights. Hitachi will initially hold 70 percent of the new venture and assume full ownership after three years, the companies said in a joint statement.

The new company, yet to be named, will be based in San Jose, California. Its management team will be organized by executives from Hitachi and IBM's existing HDD units, the statement said.

Jun Naruse, former chief executive officer (CEO) of Hitachi Data Systems, will be the new company's CEO, and Douglas Grose, current general manager of IBM's Storage Technology Division, will be the chief operating officer. Hitachi will select the new company's board of directors, and IBM will not be involved in board operations, according to the statement.

The deal is expected to close by the end of this year and Hitachi hopes to found the new company sometime in 2003, Hirotaka Ohno [cq], a Hitachi spokesman, said.

Approximately 24,000 employees, about 18,000 from Armonk, New York, based IBM, and 6,000 from Hitachi of Tokyo, will be transferred to the new company, which will have 11 manufacturing bases worldwide. No layoffs are expected during this transfer, Ohno said.

Hitachi expects the new company to achieve sales of $5 billion in fiscal 2003, and will target annual sales of $7 billion by fiscal 2006, the statement said.

The deal formalizes a disk drive alliance IBM and Hitachi announced in April. The aim is to make the combined company the largest in the HDD business and one capable of generating profits in the highly competitive business, the companies said at a Tokyo news conference in April.

Copyright © 2002 IDG Communications, Inc.

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