One of the world's largest hard drive manufacturers, Western Digital, has bought a controlling stake in Viviti Technologies, formerly Hitachi Global Storage Technologies (HGST), for $3.9 billion - R29.5 billion - in cash and 25 million shares worth $900 million.
The deal, which became effective last week, trims the number of hard drive manufacturers from four to three.
Western Digital, founded in 1970, will now operate two separate subsidiaries - WD Technologies and HGST - that have a combined turnover of $15 billion, or R113.5 billion. HGST will retain 10% of Viviti.
Competition worries
The European Commission said Western Digital had to sell its 3.5-inch manufacturing facilities before the merger could go through, as the deal was filed shortly after Seagate indicated it would buy out Samsung.
“Hard disk drives are a key component of computers and other sophisticated electronic devices as they are used to store a growing bulk of data in the digital economy. The proposed divestiture will ensure that competition in the industry is fully restored before the merger is implemented,” said commission VP in charge of competition policy, Joaqu'in Almunia.
Western Digital has now agreed to sell production assets for 3.5-inch hard disk drives, including a production plant, to Toshiba. The commission said the sale was a condition of the takeover.
Western Digital has been battling to get its Thailand factories back to full production, after the recent monsoon flooding left factories under water. It has made significant progress in restoring manufacturing capacity but full production is only expected to return in the third quarter of the year.
Big ambitions
Western Digital CEO John Coyne says the completion of the deal is a “truly momentous event in the 42-year history of our company”.
As part of the deal to sell the 3.5-inch facilities to Toshiba, Western Digital agreed to buy the Thailand-based company's 2.5-inch drive factory in Thailand, which did not resume operations after the recent Thailand flooding, for an undisclosed amount.
Coyne says the new WD is in a “strong position to seize the growth opportunity in stored digital content”.
“We have acquired a strong presence in the traditional enterprise market, substantially increased our presence in the industry's fastest-growing segments - cloud and mobility - and improved our capability to address new market initiatives such as enterprise solid-state drives, storage solutions for small business, and low-profile hard disc drives and hybrid drives for ultrabooks.”
Growth sector
A recently updated hard drive forecast by research firm IDC indicates industry revenue is expected to grow at a compound annual growth rate of 8.6% a year from 2011 to 2016.
John Rydning, research VP for hard disk drives and semiconductors, says: “The growth in demand for digital storage continues unabated, driven by the expansion of digital content in consumer and commercial applications.
“Mobility, cloud infrastructure, social business, and big data analytics are stimulating demand for digital content in new formats and new market segments, creating the need for an increasingly diverse set of storage products and technology capabilities from storage solutions providers.”
Independent analyst Paul Booth says, as demand seems to be moving to mobile computing, the market could lean towards the disc configuration that Western Digital has been left with after selling the 3.5-inch facilities to Toshiba.
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