Is Fujitsu spinning out of the hard drive business?

Fujitsu is thought to be planning to scale down its storage business after reports that it may sell its hard disk drive business to Western Digital for ¥70bn to ¥100bn ($662-945.5m).

Fujitsu issued a statement today, saying: "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. At the current time, there is no factual basis for this media report."

WD said it does not comment on rumours.

An AFP report quotes a Fujitsu spokesperson as saying: "We are exploring various possibilities for our HDD business," and that no decision had yet been made.

WD is the world's number two HDD manufacturer, with a 22 per cent market share, behind Seagate with 34 per cent. Fujitsu, ranked sixth, has 6.6 per cent (figures from iSuppli) and its HDD operation, with 2007 revenues of ¥333bn ($3.1bn), is thought to be loss-making.

It is moving to focus more on 2.5in mobile drives where Seagate and WD are competing strongly, both having released 500GB products recently. Fujitsu started shipping its SATA 500GB 2.5in, 4200rpm product in May.

It also makes a range of 3.5in enterprise drives, up to 300GB in capacity and with SCISI or Fibre Channel interfaces.

There is a medium-to-long term threat to the 2.5in hard drive business from faster flash solid state drives, and HDDs need to energetically grow their capacity so as to retain their substantial cost/GB advantage over flash. This will require significant investments in plant tooling as new platter technologies such as Discrete Track Recording (DTR) and Bit Patterned Media (BPM) are introduced. Fujitsu's manufacturing subsidiary, Yamagata Fujitsu, bought an Imprio HD2200 tool, needed for making DTR and BPM media, in August.

With 2.5in drives being unable to comand a price premium because of the several competing suppliers for whom volume of shipments is the key to a low unit cost, the opportunity to make a profit is quite limited. It's easy to see why Fujitsu might like to exit the business. However, Japanese concerns tend to have a strong sense of responsibility to employees, and 'exploring various possibilities' is not code for getting out of the business as it might be in the US.

The HDD business has been exhibiting steady supplier contraction, with Seagate buying Maxtor last year. Hitachi GST was investigating selling its HDD business last year, but has since decided to invest in it and match and beat Seagate in profitability. Fujitsu might decide that Hitachi GST and Toshiba can carry the Japanese HDD manufacturing banner and put the yen in its HDD business to better use elsewhere.

WD could see one benefit of a Fujitsu HHD business acquisition being an increase of its HDD output, meaning a lower unit cost and increased profitability.

Fujitsu's HDD business includes a plant in Japan's Nagano prefecture and the Yamagata Fujitsu subsidiary, as well as plants in the Philippines and Thailand. The Nikkei report says Fujitsu is asking that there be no mass redundancies of its 15,000 or so plant staff.

In general, the Fujitsu business is focussing on services and outsourcing to grow its revenues. A loss-making commodity HDD business beset by intense competition and needing much investment in new manufacturing processes compares unfavourably with an expanding outsourcing and services business. ®