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Hitachi GST: Sale or IPO?

'Ere... wanna buy a high-ranking disk drive operation?

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Who will buy?

Who might buy it? Who could afford the $2.6bn it might cost?

The obvious answer is one of its four competitors; Samsung, Seagate, Toshiba and Western Digital.

They could each benefit from an increase in HDD unit volume lowering their costs per drive and thus increasing their profitability.

Samsung has about 10 per cent of the hard disk drive (HDD) market in units shipped terms and so could use Hitachi GST's 18.1 per cent share to boost its share to the 28 per cent level, within striking distance of Western Digital's 31 per cent and Seagate's 3.5 per cent shares. Without such a boost it's hard to see how it could grow its way organically out of the niche it is in.

Samsung would also get an entry into the enterprise HDD market and could replace the Hitachi GST-Intel solid state drive (SSD) partnership with one based on its own NAND.

The Samsung-Seagate SSD partnership would probably have to be sacrificed though, were Samsung to become a much stronger HDD competitor to Seagate. Toshiba has recently bought Fujitsu's HDD operation, demonstrating a desire to expand its HDD market presence and prospects. Adding Hitachi GST's market share to its own would catapult up into near-parity with the big two in the HDD industry.

The Hitachi GST-Intel solid state drive (SSD) development relationship could be replaced by one using Toshiba NAND chips and, say, a SandForce or similar controller.

Toshiba would get a desktop 3.5-inch product line and Hitachi GST's LifeStudio consumer storage brand, with its focus on being a content management and sharing abstraction layer, looks to have sufficient differentiation to continue alongside Toshiba's own consumer storage products. Toshiba as a Japanese company might also have a cultural advantage in talking to Hitachi.

For Seagate, getting hold of Hitachi GST would return it to the number one slot in the industry with a 48.6 per cent share. That might be enough to spark competition worries in an industry with just four players, one top dog, a middle ranker and two weaker players.

The Hitachi GST Intel SSD relationship would probably be terminated in favour of the SSD partnership Seagate has with Samsung. The LifeStudio Hitachi GST storage brand looks to complement Seagate's own consumer storage brands focussed on media playing in the home.

The same market domination worry could apply to Western Digital if it bought Hitachi GST. The Hitachi GST Intel partnership might well be of interest to WD, supplementing its current niche SSD operation.

Wildcards

Are there likely to be any purchasers outside the HDD industry? For example, would HP want to vertically integrate downwards? Would Oracle want to own its own HDD operation? Would Huawei like to become the first Chinese HDD manufacturer?

These are potential wildcard purchasers and the investment bankers appointed by Hitachi, if the Reuters report is right, will be asking themselves such questions. Hitachi GST is keeping silent, saying it does not comment on rumour or speculation.

El Reg reckons the top four horses in the Hitachi GST Sale Stakes race, if it takes place, will be Western Digital, Seagate, Toshiba and Huawei, in that order. ®

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