Hitachi GST: Sale or IPO?
'Ere... wanna buy a high-ranking disk drive operation?
Opinion Hitachi is reported to be considering an IPO or sale of Hitachi GST, its disk drive operation, ranked third in the industry behind Seagate and Western Digital. How much is it worth? Who would want to buy it?
Hitach GST had revenues of $4.8bn in 2009. We can look at the annual revenues of Seagate and Western Digital and relate these to their market capitalisation to get an idea of how Hitachi GST's revenue could relate to its potential market capitalisation - how much the stock market would think it would be worth.
Seagate's fiscal 2010 revenue of $11.4bn is 2.2 times its current market capitalisation of $5.27bn. Western Digital's latest annual revenue of $9.8bn is 1.6 times its $6.10bn market capitalisation. Applying the same relationships to Hitachi GST's 2009 annual revenue gives us a potential market capitalisation of $2.18bn to $3bn, with $2.6bn as the rough mid-point.
If Hitachi GST were put up for an IPO would investors stump up $2.6bn for it? Storage array suppler Nexsan pulled its IPO in April. Hitachi GST has a relatively recent history of being profitable, and operates in an industry with highly complicated and frontier-pushing technology. It also has to operate with intensely detailed and intricate manufacturing processes.
We are not talking about a startup here with glamorous growth prospects in a potentially booming market, but a relatively mature number three player in a stable and steadily growing market. That doesn't sound exciting for investors. It's riskier than a utility company play with dependable revenues but less so than, say, a solar energy start-up.
Falling between the two extremes of investment dependability and high-growth prospects, Hitachi may be better advised to look for a sale of its GST operation.
Next page: Who will buy?
Why NOT to buy it?
Because the SSD is coming and will soon be eating the market for HDDs, starting with the small ones and working upwards. Certainly it'll be quite a while before you can buy a Terabyte SSD for £50, but there again, do most office PCs actually need 330Gb HDs? Personally I doubt that they need more than 80Gb, even with Windows bloatware, and they get 330Gb just because a 330Gb HD costs very little more than an 80Gb HD, and is faster than a smaller HD.
I wonder whether IBM had seen this coming when they sold the business to Hitachi? In any case, that day is now a lot closer. Why pay a lot for a technology that will be in decline , probably terminal, starting two or three years from now, if SSD technology continues to advance as predicted by Moore's law.
I'd add, that there are at least two radically new solid-state storage technologies waiting in the wings to obsolete flash memory, and maybe put Moore's law applied to storage on steroids. Memristors, and something using bistable properties of Silicon dioxide films that I don't recall the name of. I very much doubt that HP are interested in HDs, they invented the Memristor technology and presumably have patents.
Fire Up The DeathStar
Can't see who'd want them, they've been cursed with "DeathStar" [sic] disk, a product with a phenominal failure rate.
Hitachi GST are worth buying. A box of drives is just a box of drives... nothing particularly clever in that...