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IBM has agreed to sell its more than 45-year-old hard drive business to Tokyo-based electronics giant Hitachi Ltd. for $2.05 billion, the two companies announced Tuesday.
The sale comes as IBM struggles amid slumping demand for IT equipment, with the company warning Tuesday that it will take a charge of up to $2.5 billion this quarter related to ongoing layoffs and restructurings. Although IBM hasnt disclosed layoff totals, various employee and industry analysts estimate that the company has cut about 6,800 workers.
An agreement between IBM and Hitachi was first disclosed in April, with the two declaring plans to combine their hard drive businesses in a joint venture, but executives said Tuesday that Hitachi will ultimately assume sole ownership of the newly formed hard drive company after three years.
Pending U.S. regulatory approval, IBM and Hitachi expect to close the deal by years end.
Under terms of the agreement, the hard drive business would comprise 24,000 employees at 11 manufacturing sites, with 18,000 from IBM and 6,000 from Hitachi. Hitachi would control 70 percent of the new venture for the first three years. After that time, Hitachi would acquire IBMs 30 percent stake and assume full control of the business.
The new company will be based in San Jose, Calif., where IBM has manufactured disk drives since 1956.
The deal will make Hitachi the world leader in sales of 2.5-inch hard drives, with about a 60 percent share of the market, and a strong second in the 3.5-inch hard drive market behind Seagate Technology Inc.
“By combining hard-disk drive research, development, manufacturing, marketing and sales into an independently operating company, we are creating a new industry leader fully focused on the $20 billion disk-drive market,” Masaaki Hayashi, senior vice president and director for Hitachi, said in a statement.
IBM said select hard-disk drive operations were not included in the deal, mostly involving research, and that the company will continue its efforts targeted at the high-end storage business.
IBMs hard-disk drive business lost money last year amid a worldwide decline in IT spending and PC sales.
Hitachi projected that the new company would start turning out profits after a year, projecting sales of about $5 billion in 2003, and annual sales of $7 billion by fiscal year 2006.