Hello Tosh, wanna a disk business?

Having failed to sell of its hard disk drive business to Western Digital Fujitsu is now trying to sell part of it to Toshiba. The result would be the world's largest supplier of 2.5-inch drives.

Toshiba has admitted it is talking to Fujitsu, whilst Fujitsu would only say it is talking to a number of suppliers.

The price is reported to be 30 - 40 billion yen ($340m - $440m), down from the 50 billion yen rumoured for a potential WD buy. The possibilities seem to be an outright takeover of all or part of Fujitsu's HDD business, or a joint-venture with Toshiba having a majority share.

Toshiba makes 1.8-inch and 2.5-inch drives for portable digital devices, vehicle navigation applications, where it had 84 per cent of the market in 2007, and mobile computers. It is number 5 in terms of drive shipments behind Seagate (1), Western Digital (2), Hitachi GST (3), Samsung (4) but ahead of Fujitsu (6), based on iSuppli figures. Toshiba also makes NAND flash, having a joint manufacturing venture with SanDisk.

Fujitsu makes 2.5-inch drives, having recently announced a 6Gbit/s SAS 2 300GB product spinning at both 10K and 15K rpm. It also makes 3.5-inch drives for server and storage array use, and has a Handy Drive portable USB drive line.

It is not clear if Toshiba is interested in the 3.5-inch business where the market looks set over the next two to five years to decline in favour of 2.5-inch drives.

Toshiba would become the world's leader shipper of 2.5-inch drives if the deal comes off. This would help lower its cost per drive so increasing its profit margin and enabling it to withstand price competition better. The resulting entity could also leapfrog past Samsung to become the world's number four shipper of drives. Currently only Seagate, WD and Hitachi GST amongst the HDD suppliers are profitable, although the recession may change that. A combined Toshiba-Fujitsu HDD business might gain enough critical mass to become profitable too, once the recession is over.

The removal of excess capacity from the industry could help to strengthen prices, something which would please all the remaining suppliers.

Seagate's ex-CEO Bill Watkins speculated at CES that the TDK HDD read/write head business might end up in a merged Fujitsu-Toshiba HDD business, providing the vertical integration that he supports.

Fujitsu's HDD business includes a component plant in Japan's Nagano prefecture, the Yamagata Fujitsu drive media subsidiary, and drive manufacturing plants in the Philippines and Thailand.

It was reported that WD couldn't meet Fujitsu requirements for its HDD business to be bought as a complete bundle but that requirement may have gone away. There is speculation that Toshiba may not want the Yamagata media substrate operation, nor the Nagano component plant, and that this and other unwanted parts of Fujitsu's HDD operation could be sold to others. ®