After flirting with a potential IPO, Hitachi Global Storage Technologies (GST) is set to be snapped up by its hard drive manufacturing rival Western Digital (WD) for $4.25bn in cash and stock. The deal would be the largest transaction in the storage industry in more than seven years, and would solidify WD’s position as the biggest hard drive vendor.
Beyond the benefits of consolidated manufacturing and increased market share, the Hitachi GST acquisition provides WD with credibility in the enterprise market, which was the key handicap it had to overcome against its longtime rival Seagate. Wall Street certainly saw it that way, sending WD shares up 14% in heavy Monday-morning trading. (WD indicated that the combination, which is expected to close in the third quarter, would be immediately accretive to non-GAAP earnings.)
We would also note that Hitachi GST’s expertise in enterprise SAS and fiber-channel hard drives was the key asset that led to its partnership with Intel for enterprise-class solid-state disks, and WD will now benefit from having these high-performance NAND flash products in its lineup. In the Hitachi GST/Intel partnership, though Intel manufactures the drives and supplies the NAND flash for the units, the products have Hitachi GST branding and are sold through Hitachi GST’s business partners.
The logic behind that strategy stemmed from the fact that Hitachi GST already had relationships with major enterprise storage and server providers, which would have made it easier for the products to get through qualification cycles at OEM partner sites. With this deal, WD will also attempt to leverage these relationships to build up its market share well beyond the consumer space.