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Tosh will buy Fujitsu disk biz

MOU means it's a pretty near guaranteed deal

It's as good as a done deal - Toshiba is set to take over Fujitsu's hard disk drive operations after the two firms thrashed out a memorandum of understanding.

The deal will happen in stages. First Fujitsu will group its HDD operations into a separate comopany. Toshiba will then buy about 80 per cent of this and run it as a Toshiba subsidiary; then Fujitsu will relinquish its residual 20 per cent holding to Toshiba with the minority interest period presented as a way to smooth the transfrer of ownership

Under the MOU, Fujitsu will transfer to Toshiba its HDD design, development, manufacturing, sales, and all other functions currently carried out by Fujitsu and Fujitsu Group companies, with the exception of its HDD head and media businesses. This exception had been expected and Fujitsu's hard drive media business will be sold to Showa Denko KK.

The main assets covered by the transfer should be Fujitsu's HDD development, manufacturing, and sales divisions:

- HDD manufacturing subsidiaries Fujitsu Computer Products Corporation of the Philippines (FCPP) and Fujitsu (Thailand) Co Ltd (FTC)
- HDD design, development, quality assurance and other departments of Yamagata Fujitsu
- HDD technology development department of Fujitsu Laboratories
- HDD sales and marketing offices outside Japan

Some 8,000 employees in these operations will be taken on by Toshiba.

Toshiba will use the Fujitsu HDD operation to strengthen its 2.5-inch small form factor (SFF) drive business as expected and also to enter the enterprise hard drive business where it has no presence. This is a 3.5-inch form factor business that is expected to transition to 2.5-inch drives over the next three to five years. Currently SFF drives are used in netbooks, notebooks, some automotive and some consumer applications. They are just beginning to appear in the first storage array products.

Toshiba says it will develop solid state storage (SSD) drives for both servers and storage arrays, joining Hitachi GST and Seagate in openly committing to SSD products. Western Digital has indicated that it would not be averse to supplying SSDs if the time were to be right so we have an almost clean sweep of HDD suppliers as Samsung, like Toshiba, fabricates NAND flash chips already. Toshiba will merge its own SSD technology with Fujitsu's enterprise HDD technology, suggesting that a competitor for STEC; EMC, IBM, HDS and Sun's SSD supplier, could emerge.

Toshiba will gain economies of scale in HDD manufacture and hope to obtain cost reductions from component suppliers, opening the way, it hopes, to profitability.

The enlarged Toshiba HDD operation will leapfrog Samsung to become the number 4 HDD supplier following Seagate, Western Digital and Hitachi Data Systems. Its revenue will be in the 700bn yen ($7.6bn) area, about 16 per cent of the global HDD market (iSuppli figures) and Toshiba wants to lift this to 20 per cent by 2015. That is bad news for Samsung, about to become the smallest of the top five HDD suppliers and in a market where unit volumes appear to be the key to profitability. As the old business saw has it, Samsung better get big, get niche, or get out.

Fujitsu said the sale price will be decided in March, with the deal completing by the end of June. ®

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