Reports that Japanese technology giant Fujitsu is in talks to sell its sluggish hard disk drive business to U.S. storage firm Western Digital ( WDC) have been met with approval from both investors and analysts. The news, which comes at a time of intense competition and tight profit margins in the hard disk drive space, pushed Fujitsu's shares up 4.7% in Tokyo trading. The first indications of a possible deal came when Japan's Nikkei business daily reported that the two firms are negotiating a price of $662 million to $945 million. Reuters also reported that a sale could be completed by year's end, citing a Fujitsu source. Fujitsu distanced itself from the Nikkei report earlier today, although there is clearly a new broom sweeping through the Japanese technology giant. The company, which recently appointed Kuniaki Nozoe as its company president, is now on a mission to streamline its business, according to Needham research analyst Richard Kugele. "It's important to remember that Fujitsu Ltd. has a new CEO and he seems determined to shift the focus," he says. "There has been speculation that he is moving to a software or a services model like IBM ( IBM)." Fujitsu also faces stiff competition from the likes of Seagate ( STX), Western Digital and Hitachi ( HIT) in the hard disk drive market, something which will only become tougher with the continuing use of notebook computers. "It's not that Fujitsu is doing poorly, it's just a difficult space," says Kugele. "The world is moving to notebooks
and the odds are that the U.S. guys that dominate the desktop will dominate the notebook."
A spokesman for Western Digital refused to comment on the possibility of a deal when contacted by TheStreet.com, and Fujitsu also distanced itself from all the acquisition chatter. "There was an article in the Nihon Keizai Shimbun newspaper today regarding Fujitsu's hard disk drive business. This article is not based on information released by Fujitsu," the company said, in a statement on its Web site. "At the current time, there is no factual basis for this media report." Fujitsu is nonetheless rumored to be considering a sale of its hard drive production facilities in Japan's Nagano and Yamagata prefectures, as well as sites in Thailand and the Philippines. Revenue from Fujitsu's Ubiquitous Product Solutions business, which includes hard disk drives, PCs and mobile phones, rose 6.3% in the company's latest year, although Kugele feels that the company's disk drive business is hardly a stellar performer. "I believe that it has been more or less break-even for the last two or three quarters," he says, adding that he would not be at all surprised by a sale of the hard disk drive business. "I would imagine that Fujitsu investors would love the idea." Other analysts agree that a change in Fujitsu's current business model would make sense, with hard disk drives likely to come under the M&A microscope. "It's necessary for Fujitsu to review its disk-drive operations because it's facing severe competition in an industry that requires large commitments to capital spending for companies to be competitive,'' Yukihiko Shimada, an analyst at Mitsubishi UFJ Securities Co., told Bloomberg.
Western Digital's shares were down 2.8% in New York trading.