Western Digital Corporation (WDC) has announced that it will acquired rival disk-maker Hitachi GST, a move that will make it the largest disk drive manufacturer in the world.
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WDC will pay $US3.5 billion and a swag of shares to Hitachi, which will gain a pair of seats on the WDC board and pick up 10% stake in the company.
The deal is not a bolt from the blue: the two companies have collaborated on WDC’s Advanced 4K drive format.
In a press release announcing the deal, WDC’s President and CEO John Coyne said “The acquisition of Hitachi GST is a unique opportunity for WDC to create further value for our customers, stockholders, employees, suppliers and the communities in which we operate,” and added his belief that the transaction “ ... will result in several key benefits - enhanced R&D capabilities, innovation and expansion of a rich product portfolio, comprehensive market coverage and scale that will enhance our cost structure and ability to compete in a dynamic marketplace.”
Something more useful than that PR blather was offered by analyst firm iSuppli, which said through analyst Fang Zhang that the deal gets WDC into the enterprise, a market where it currently has a very thin presence indeed.
“WDC currently is only a marginal player in the enterprise HDD market, with nearly all of its sales going instead to the market for consumer drives, an area that includes products like desktop and mobile PCs, set-top boxes and video game consoles,” Zhang notes in his own press release. “Of all of the major HDD suppliers, Western Digital in the fourth quarter of 2010 had the smallest share of any company’s total shipments going to the enterprise segment, at less than 1 percent. In comparison, 65 percent of Seagate’s HDD shipments and 27 percent of Hitachi GST’s shipments went to the enterprise market.”
Zhang also notes that the combination of WDC and Hitachi GST is comfortably the largest disk vendor on the planet.
“With the purchase, WDC will claim 49.6 percent share of global Hard Disk Drive (HDD) unit shipments based on fourth-quarter totals, compared to 29.4 percent for Seagate,” his press release says, before hitting CTRL-B to state: “This will give WDC a lead of 20.2 percentage points over Seagate, up from a mere 2 points without the acquisition.”
This makes WDC the undisputed king of disk drive shipments, even if Seagate gets most of the high-margin cream that comes from enterprise sales.
Seagate’s blogs and media centre are silent on the acquisition, but of course the enterprise market is rather more lucrative than its consumer cousin. WDC’s arrival in the space gives it the chance to chase higher margins and volumes and will surely make Seagate uncomfortable at the very least.
Storage bloggers are, to date, largely quiet on the acquisition, save for Nigel Poulton who opines that while enterprise business has high margins, it probably also has high R&D costs. He therefore wonders “... will WD be up for the fight with Seagate?”
“IBM and Hitachi clearly weren’t.
So, what happens if WD decide not to compete in this space?
If Seagate became the sole supplier in the enterprise space, they could effectively charge whatever they want. Competition drives cost down.
Competition also drives innovation, so where would the drive for innovation come from if this were to happen?”