Will Western Digital Land Fujitsu's Drive Unit?
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Japan's Fujitsu is in talks with U.S. hard disk drive maker Western Digital on the sale of its money-losing hard drive business, a company official said, in a deal one newspaper estimated could be worth $945 million.
If realized, the move would be the latest in a round of consolidations as inventories in computer storage drives climb and price falls batter smaller hard disk drive makers.
Media reports that the two were in talks sent Fujitsu's share price up 4.7 percent, against the benchmark Nikkei average's 1.9 percent fall and despite Fujitsu's denial that it was approaching an agreement.
Fujitsu, whose losses in hard drives were a little more than $47.29 million in the year ended in March, is also in talks with other makers and aims to sell the business by the year-end, said the company official, who spoke on condition that his name not be used.
"It's positive news," said Tomomi Yamashita, a fund manager at Shinkin Asset Management. "Investors were hoping Fujitsu would part with the business, because it's so hard to make money on products that have become commoditized."
If talks with Western Digital succeed, the deal could double Western Digital's market share in 2.5-inch hard drives, used most commonly in laptops, to around 25 to 30 percent, ahead of No.1 Seagate's roughly 20 percent market share, according to data compiled from Hitachi and Toshiba.
Fujitsu and Western Digital are negotiating a price in yen equivalent to $662 million to $945 million, the Nikkei business daily reported Thursday morning.
"There is no truth at this time to the Nikkei report concerning our hard drive business," Fujitsu said in a statement.
Fujitsu, which also competes with International Business Machines Corp (NYSE: IBM) and Electronic Data Systems in IT services, is trying to focus more resources on its IT consulting business.
Need a niche
Rising development costs and steep price falls forced Fujitsu to pull out of desktop hard drives in 2001, when it sold a production facility in Thailand to Western Digital to focus on storage for laptops and servers.
Fujitsu executives said last year they would be open to approaching domestic hard drive players about partnerships.
But Japanese makers of storage devices have also been struggling to keep up with Seagate and Western Digital's cost cuts, and are betting on specialty hard drives that are either smaller or have higher capacity.
No.3 hard disk drive maker Hitachi last year considered and later scrapped a plan to sell a stake in its hard drive unit, beefing up its lineup of high-storage disk drives, while Toshiba has carved out a niche as the world's top maker of 1.8-inch drives used in mobile devices.
The wave of consolidation most recently spread to Japan's Hoya and Showa Denko, which said on Tuesday they will merge their hard disk media businesses.