Is WD making a bid for Fujitsu's hard drive business? 5 October, 2008 By Paul Weinberg

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That's the view of Tom Coughlin, president of Coughlin & Associates and a specialist in the HDD market.

He also agreed with news reports that Western Digital could be paying anywhere from $600 million to just under $1 billion for Fujitsu's HDD plants in Japan, Thailand, and the Philippines.

"There are strategic advantages that WD would gain in such an acquisition for themselves in terms of marketing, positioning and competitiveness in an increasing number of [HDD] markets. And [it] makes them much more of a direct competitor to Seagate overall."

Of late, HDD market leader Seagate has experienced a drubbing from the number two player in the same product category, WD -- which has gained a few percentage points over its rival in the sales of high capacity drives and 2.5-inch drives for the notebooks, Coughlin stated.

He told eChannelLine he expects that the smaller form factor drives will dominate the HDD market in the next decade.

On the matter of larger drives, Coughlin observed, "Seagate made a strategic miscalculation, on what the market was after, and basically underestimated the need for storage capacity."

Hard disk drives are not a major part of Fujitsu's business, even though the company has been engaged in this market for sometime, stated Coughlin. At the same time, he noted that HDDs represent the core business for WD which has focused on building drives for notebooks, PCs and external storage devices.

"I think that Western Digital is going to have to lead on technology in addition to just being a low cost producer."

The acquisition of Fujitsu's HDD business gives WD access to a popular enterprise storage hard disk drive platform which it did not have before, as well as research and development facilities, stated Coughlin.

"Fujitsu is arguably in second place on its enterprise storage platform and high margin products."

Also, WD would likely gain access to Fujitsu channel partners that sell enterprise storage disk products, he added.

The withdrawal of Fujitsu from an overcrowded HDD market and increased consolidation in this product category makes a lot of economic sense, stated Warren Shiau, lead analyst, IT research, The Strategic Counsel.

"So, there are usually two choices [for HDD vendors]: get out of the market or acquire and hope to get the scale to be one of the two to three last men standing. The other possibility is that there's simply too much capacity and the big players like Seagate and Western Digital can't consolidate the market quickly enough to reduce oversupply and the entire industry could end-up insolvent or bankrupt."

Fujitsu is wise to exit the HDD market in face of the coming competition from solid state drives, particularly from Intel, argued Rob Enderle, principal analyst at The Enderle Group.

"Fujitsu has unfortunately had a bad quality reputation which resulted from a number of products which didn't hold up particularly well and, coupled with a very competitive market, has made it very difficult to compete," he said. "In the current market there is substantial opportunity for consolidation and given Fujitsu would likely have to fully re-brand their offerings to get around this perception problem, they have rightly come to the conclusion that selling this property off would likely be the most economical path."