Toshiba-Fujitsu Gives Storage Rivals an In

Toshiba takes Fujitsu's disk-drive business, giving the storage specialist's rivals room to advance.
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Toshiba

is looking to boost its enterprise storage story by grabbing

Fujitsu

's hard disk drive business, a move which could have a major impact on other tech component suppliers.

The Japanese electronics giants announced the deal early Tuesday, although neither firm specified the value of the transaction, which finally seals the future of Fujitsu's hard disk-drive business.

Fujitsu had been in

talks

with

Western Digital

(WDC) - Get Report

over a possible sale, although the discussions recently

ended in a stalemate

with the two firms reportedly unable to agree on a deal.

Toshiba will now control an 80% stake in a newly formed Fujitsu hard drive company and acquire the remaining 20% at some point in the future.

By shrinking the number of companies supplying hard drives for mobile devices, the deal could prove particularly beneficial to Fujitsu rivals

Seagate

(STX) - Get Report

and Western Digital, according to Jayson Noland, an analyst at Robert W. Baird.

"The acquisition reduces mobile hard disk-drive supplier from six to five, which should reduce industry capacity and improve pricing behavior," he wrote in a note released Tuesday. Seagate and Western Digital, in particular, will reap the benefits of this consolidation, he wrote.

Shares of Seagate, which has recently been feeling the effects of a

tough economy

rose 3 cents, or 0.57%, to $4.39 in early trading Tuesday, despite the Nasdaq slipping 3.71%.

Western Digital's shares, however, reflected the broader decline in tech stocks and fell 94 cents, or 5.64%, to $15.74.

Other companies playing in the mobile hard disk-drive space include

IBM

(IBM) - Get Report

and

Hitachi

(HIT)

, which recently made a bewildering array of management changes after posting a massive

third-quarter loss

.

Despite earning a reputation as one of less sexy parts of the tech sector, storage at least offers a consistent revenue stream at a time when the consumer market is tanking. Toshiba, for example, recently took a huge third-quarter

revenue hit

thanks to weak consumer spending.

Robert W. Baird analyst Jayson Noland estimates that the combined Toshiba/Fujitsu hard-disk-drive business will account for between 25% and 30% of the mobile hard drive market, making it the biggest player in the space.

"The merger also gives Toshiba a stake in the high-margin and relatively stable enterprise business," added Noland, but warned that the next few months could offer a window of opportunity to the firm's rivals. "We expect the entity will probably immediately lose share to Seagate, WDC, and Hitachi, due to attrition through the integration process."

Toshiba already sells small form-factor drives for notebooks, mobile devices and consumer electronics but is eyeing adjacent markets.

In a statement, Toshiba confirmed that it is buying Fujitsu's hard disk-drive development, manufacturing and sales operations. With users drowning in data, the firm is keen to make its presence felt in the enterprise server and storage market, it said.

Specifically, Toshiba is looking to boost its Solid State Drive (SSD) business by combining its own NAND memory technology with Fujitsu's hard disk drives. SSD technology, which offers faster data access speeds than traditional hard disk drives, have been gaining momentum, with companies such as

EMC

(EMC)

,

Sun

(JAVA)

, IBM and

SanDisk

(SNDK)

all throwing their

weight

behind the technology.

Fujitsu and Toshiba have already signed a memorandum of understanding for the hard drive sale and plan to complete a transfer contract "at an early date." The deal should be completed in the fiscal first quarter of 2009, they said.

Toshiba, however, will not acquire Fujitsu's disk drive "heads and media" operations, which build the components used to read and write data on the drives. In a separate announcement, Fujitsu confirmed that it had signed a memorandum of understanding to transfer its media business to Japanese firm

Showa Denko

.

Fujitsu also lowered its earnings and dividend guidance for fiscal 2008 Tuesday, citing one-time losses related to the transfer of the hard disk drive business and the "severe" economic climate.