Fujitsu sells out to Toshiba

Fujitsu has agreed to sell its hard disk drive (HDD) business to Toshiba, according to reports.

Ranked number six worldwide by iSuppli, Fujitsu's HDD business is loss-making, and Western Digital (number 2) was a rumoured buyer before Toshiba emerged. The global HDD industry is seeing a contraction in demand due to the deepening recession. Both Seagate (number one) and Western Digital have announced staff cuts and other cost-saving measures.

Exactly what Toshiba (number five) is buying is unclear, but read/write head manufacturing is not included. Fujitsu has announced that its HDD head manufacturing operation at Nagano, Japan will terminate. The plant will revert to only making printed circuit boards for servers and telecoms kit, which it currently does alongside the read/write heads, after March 31.

None of its 360 employees will lose their jobs with reassignments to other parts of Fujitsu likely. The company will book a ¥5bn ($56m) loss to cover this transition and attribute it to the final 2008 quarter.

There has also been speculation that Fujitsu's Yamagata drive media plant may not be included in a Toshiba purchase.

Fujitsu has hard drive manufacturing operations in the Philippines and Thailand. There is speculation that the Fujitsu HDD manufacturing operation in Thailand could close with around 7,000 jobs threatened. The apparent logic here is that with the current depressed state of demand for 2.5-inch drives Toshiba has no need of the plant's capacity. It seems far-fetched.

The key to profitability in the HDD business is spreading manufacturing and other costs amongst as many hard drives as possibly. If you are currently making a loss, as Toshiba HHD operations are, then you need more manufacturing capacity, not less.

No selling price has been revealed, although one in the area of 30 to 40 billion yen ($340m - $450m) has been suggested. If and when the sale does go through that will open a route for profitability for Toshiba's HDD operation but leave Samsung, currently the fourth-largest HDD manufacturer, still in the loss-making mire. ®