Western Digital buys Hitachi's storage unit for $4.3 billion, eyes enterprise

Summary:Western Digital on Monday acquired Hitachi Global Storage Technologies in a cash and stock deal valued at $4.3 billion and grabbed a big foothold in the enterprise market.

Western Digital on Monday acquired Hitachi Global Storage Technologies in a cash and stock deal valued at $4.3 billion and grabbed a big foothold in the enterprise market.

Simply put, Western Digital's acquisition of Hitachi's storage unit transforms the company. One look at IDC's most recent storage standings highlights how the acquisition changes the game for Western Digital.

Western Digital, primarily a consumer storage player, will now battle Dell to be a top 5 storage player.

Indeed, Western Digital will offer everything from personal storage devices to solid-state enterprise drives. Once this acquisition closes, there will be only four major hard drive makers---Seagate, Western Digital, Toshiba and Samsung. Hitachi's storage unit was planning to go public.

Western Digital CEO John Coyne said on a conference call:

About 10 years ago we looked at the industry landscape and it was clear that product breadth, scale, and vertical integration would be critically important in order to deliver compelling customer value in a growing and highly competitive industry. At that time we had none of these attributes. In the ensuing years we acquired and successfully integrated in heads and media, and we expanded beyond our desktop routes into

the consumer electronics, branded nearline enterprise, mobile, and solid-state markets.

Western Digital operating chief Tim Leyden said:

With the combined entities we will be able to optimize our capital investments as we improve the efficiency of our respective asset bases, reduce operating expenses, and increase our competitiveness. As for the combination of our two entities, we will have the hard drive industry's broadest product portfolio across the mobile, desktop, enterprise, consumer electronics, branded, and solid-state drive markets, providing a tremendous value to our customer base. Perhaps most powerfully, the pooling of our intellectual property, R&D, and engineering capabilities will provide a very strong technological foundation.

Under the terms of the deal, Western Digital is paying $3.5 billion in cash with the remainder paid for via 25 million Western Digital shares. Hitachi will own 10 percent of Western Digital when the deal is done. The companies said they expect the merger to close in the third quarter.

For Western Digital, the transaction will add to non-GAAP earnings immediately. Coyne, CEO of Western Digital, will remain in charge and with Leyden and CFO Wolfgang Nickl reporting to him. Steve Milligan, CEO of Hitachi GST, will report to Coyne.

On the conference call with analysts, Western Digital said there would be operating expense cuts. Western Digital executives were also confident that they could carry out any restructuring efforts. That topic was a big question since Hitachi has struggled with restructuring before with its Japanese ownership.

Bottom line: The acquisition of Hitachi will allow Western Digital to better navigate the boom and bust cycle in the storage industry.

Related: Tablets, price discipline may whack hard drive makers

Topics: Hardware, Storage

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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