IBM and Hitachi are to pool their hard disk drive businesses into a company majority owned by Hitachi. Lacklustre results in IBM's hard disk drive (HDD) business and a belief that other sectors of the storage industry offer better growth opportunities led IBM to the deal, it said.
Tokyo's Hitachi will pay IBM for a 70 per cent stake in the yet-to-be-formed company. The new company will be based in San Jose, California, and draw its CEO from Hitachi.
Other details, including the size of the payment, are yet to be announced, representatives of the companies said. According to a Wall Street Journal report, the payment is expected to exceed $US1 billion.
The two companies hope the new joint venture will achieve annual revenue of between $US3.8 billion and $US4.6 billion.
"It's meaningless to keep the business unless we become the top vendor," said Etsuhiko Shoyama, president of Hitachi at a Tokyo news conference. "We expect this tie-up will hold the leading position in the market."
The move amounts to a partial withdrawal from the hard disk drive business by IBM, which has been hit by increased competition, higher development costs and lower demand in recent years. The company has seen growth in sales of hard disk drives to other manufacturers from its OEM (original equipment manufacturer) business in only two of the last eight quarters.
"With this joint venture, we will try to survive in the HDD business by becoming a market leader," said Takuma Otoshi, president and CEO of IBM Japan in Tokyo.
An analyst said the hard disk deal is good for each company. "In terms of scale, it will help each vendor," said Masaki Suzuki, a senior analyst at Gartner Japan. "But, like many mergers or integrations, one plus one can't be two. Maybe in the process, both companies may try hard to make the organisation effective and competitive and that could be a challenge for them."
The alliance has the most potential to help the companies in the 3.5-inch enterprise hard disk market. Unlike the 2.5-inch disk market, where IBM holds a leading position and Hitachi is a few positions below, both companies have much room for improvement, Suzuki said.
"In the enterprise market for 3.5-inch fibre channel and SCSI disk drives, Hitachi has a small market share, and that is mainly for their own disk array, and IBM has been struggling with their enterprise hard disk drive business," Suzuki said. "Each has good experience in engineering and the new company should be able to leverage this ability into new technology."
Wednesday's deal was accompanied by a second agreement under which the two companies will work together to develop new storage networks and systems.
By 2005, there will be 13 times more data stored than today, IBM's Otoshi said. He estimates that there are 43 billion billion bytes (43 exabytes) of data in storage now, one-third of them on individual PCs. "As computers' networking technologies spread, how to store data will be a big issue in the near future," he said.
The companies will work together on virtualisation technology, which allows a system administrator to control and manage storage systems on a group basis rather than unit by unit, Otoshi said. Their collaboration will also include research and development into interface standards, and new storage technologies that are interoperable and based on open standards, he said.
"The reason for this tie-up is simply because we want to develop RAID (redundant array of independent disks) technologies efficiently," said Hitachi's Shoyama. "But at some point, we expect Hitachi and IBM to compete with each other in the future. By jointly developing CIM (Common Information Model) and virtualisation, we will to be the global number one in RAID storage systems."