Toshiba is officially in talks to buy Fujitsu's hard disk drive business, which would make Toshiba one of the world's largest producers of data storage. The deal is worth approximately $340 million to $450 million. In addition to HDDs, Toshiba is also the world's second biggest maker of solid state drives after Samsung.
TOKYO (Reuters) - Japan's Toshiba Corp said it is in talks to buy
Fujitsu Ltd's hard-disk drive business, a deal that would create the
maker of small hard drives and is reportedly worth $340-$450 million.
Shares of Toshiba and Fujitsu surged more than 5 percent on the news
as analysts said the deal would be positive for both companies, though
the outlook still looks tough as the global economic slowdown hurts
demand for personal computers.
Toshiba sees hard-disk drives as a growth business, while Fujitsu
has been exploring ways to turn around its loss-making HDD operations
and concentrate on its IT consulting business.
Fujitsu's talks with U.S. rival Western Digital to sell its HDD business were reported to have fallen through late last
year. Fujitsu spokesman Etsuro Yamada said the company was in talks
with multiple parties about the future of its HDD operations, including
a possible sale or alliances.
"Size matters in the hard-drive business, and Toshiba would be able
to benefit from being the biggest maker of 2.5-inch drives," said
Mitsubishi UFJ Securities analyst Yukihiko Shimada.
"If the deal goes through, it would also be able to seek synergies with NAND, SSD and server-use devices," he said.
Toshiba, the world's No. 2 maker of NAND flash memory after Samsung
Electronics has bet heavily on NAND-based solid state drive (SSD)
seen as a promising alternative to some hard-disk drives because they
consume less energy.
But even as the SSD market grows, demand for hard-disk drives is
expected to increase, especially for smaller ones, because SSD and HDD
are used for different applications and flash memory-based drives are
still more costly.
Both Toshiba and Fujitsu focus on 2.5-inch drives that are used
mainly in laptops, and the combination of their HDD operations would
give Toshiba a one-third share in the global market of such devices,
putting it ahead of Hitachi Ltd and Western Digital.
Analysts say Fujitsu has lacked cost competitiveness and has fallen
behind rivals in new product launches, while Toshiba would be able to
cut unit costs by expanding its business. The 2.5-inch drives are used
in other electronics products such as car navigation systems.
OUTLOOK STILL TOUGH
Toshiba spokesman Keisuke Ohmori confirmed an earlier report by the
Nikkei business daily that the company is in talks to buy Fujitsu's HDD
business but declined further comment as the talks are ongoing.
The Nikkei said a deal between Fujitsu and Toshiba would likely be
worth 30-40 billion yen ($340 million-$450 million), adding that it would be
announced at the end of the month if the heads of the two companies
come to an agreement at a meeting this week.
Tatsuya Mizuno, a director at Fitch Ratings, said it makes sense
that Toshiba wants to buy Fujitsu's hard-disk drive business and use
their larger scale to lower costs, but warned it could still be
difficult to boost profits amid weak demand and falling prices.
"It is not as simple as all going well because of a bigger scale,"
he said. "Prices are quite volatile in this sector, and it is hard to
generate profits consistently."
The Nikkei said on Tuesday that Toshiba would likely post its first
operating loss in seven years this fiscal year due to a deteriorating
chip business, which also faces slack demand, excess capacity, and
The paper said Toshiba wants to buy Fujitsu's hard-drive
manufacturing and sales networks, including two hard-drive plants, one
in Thailand and one in the Philippines.
A deal is not expected to include a plant in Nagano prefecture,
north of Tokyo, where Fujitsu makes hard-drive parts, or the hard-drive
production segment of Fujitsu unit Yamagata Fujitsu, it said.
Fujitsu is looking at selling its remaining hard-drive operations to
other firms with an eye on withdrawing from the business altogether,
the Nikkei said.
Fujitsu competes with International Business Machines Corp and Hewlett-Packard in IT services.
Shares of Toshiba jumped 6 percent to 408 yen and Fujitsu shares
gained 5.3 percent to 415 yen, outperforming a 0.3 percent rise in the
benchmark Nikkei average .N225.
(Additional reporting by Ted Kerr and Yumiko Nishitani; Editing by Chris Gallagher)
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