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IBM Sells Hard Disk Drive Biz; Cuts Staff - InternetNews.
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IBM Sells Hard Disk Drive Biz; Cuts Staff

Following the $2.05 billion agreement to sell the money-losing hard disk drive (HDD) operations to Hitachi , Armonk, N.Y.-based IBM on Tuesday announced it would lay off 1,500 employees from its Microelectronics Division, a move aimed at increasing operational efficiencies.

The layoffs, which accounts for about 7.5 percent of the unit's work force, follows an earlier announcement that Hitachi would shell out $2.05 billion for the bulk of IBM's HDD-related assets. Initially, the Japanese electronics behemoth would own 70 percent of the new company and make a series of fixed payments to IBM before taking full ownership after three years.

As a result of all of the staff cuts, Big Blue said it would take a pre-tax charge of approximately $2 billion to $2.5 billion, primarily in the second quarter. "These include charges associated with the company's exit from the hard disk drive business, write-offs of assets in the Microelectronics business, and charges related to productivity initiatives, principally workforce reduction," IBM said in a statement.

IBM and Hitachi had earlier confirmed the fleshing out of an earlier agreement to merge the hard disk drive (HDD) operations into a new standalone joint venture.

The merged company, to be managed by an independent team of executives from Hitachi and IBM's existing HDD operations, would be based in San Jose, Calif.

Corporate managing director of Hitachi Dr. Jun Naruse has been tapped as CEO for the new company with IBM's Douglas Grose to serve as chief operating officer. Grose is currently general manager of IBM's Storage Technology Division.

Hitachi gets to select the new company's board of directors, and IBM will not be involved in its operations.

The companies said the new organization would employ about 24,000 -- 18,000 from IBM and 6,000 from Hitachi -- with major manufacturing operations at 11 locations around the world.

Hitachi estimates the new company would account for approximately $5 billion in sales in fiscal year 2003, and will target annual sales of $7 billion by fiscal year 2006. "IBM and Hitachi have each agreed to multi-year HDD supply commitments from the new company," it added.

In addition to the consummation of the HDD deal, IBM and Hitachi are proceeding with separate negotiations related to a planned multi-year alliance to research and develop new open standards-based technologies specific to next-generation storage networks and systems. IBM and Hitachi trail market leader EMC in the storage networking space.

"The companies have created a process to review joint projects designed to improve interoperability, reduce complexity and improve cost of ownership for storage systems customers. Additional information on this alliance will be announced when negotiations are finalized," IBM said.

Separately, IBM announced a new business unit to provide a wide range of design services for manufacturers of information systems, networking gear and consumer electronic products.

The company said the new unit will target OEM customers looking to reduce cost, time-to-market and complexity from designing systems internally. It also will help them take advantate of the the latest technologies and integrate hardware and software from existing IBM organizations.

"We estimate the opportunity for providing these enhanced services could grow to nearly $6 billion within the next five years," said Patrick Toole, general manager of the new services unit.

The unit would be set up within IBM's Technology Group and would offer services including design, test, certification, prototyping and manufacturing for chips, cards, boards and systems. IBM said OEM customers could use the services to facilitate and expedite everything from chip design, to component fabrication, to card and board assembly, to complete outsourcing of all aspects of design and manufacturing for subsystems and systems.

"IBM initially will concentrate its design services on the communications and consumer sectors of the IT industry. Its goal is to expand into other areas such as storage systems, server, automotive, medical, defense and aerospace," the company said.