All the cool data centers are deploying solid state drives that use Flash memory as opposed to janky old hard drives, so why is Western Digital (s wdc) shelling out $4.3 billion to acquire the old-fashioned hard disk drive business of Hitatchi (S hit)? Despite the excitement around SSDs, the spinning disks inside a data center aren’t going anywhere any time soon. They store more information for less, and further consolidation will help bring prices for the commodity drives down.
It’s getting harder for too many players to make money in this commoditized market and thus the consolidation has been occurring for years. Hitachi actually swallowed IBM’s hard drive business back in 2002, and Seagate, Western Digital’s main rival purchased Maxtor in 2005. Meanwhile, Seagate and Western Digital as the two top hard disk drive manufacturers out there will push harder into the growing SSD market dominated by Samsung and SanDisk. Seagate already has an enterprise SSD partnership with Samsung. With the Hitachi deal, Western Digital gets access to a SSD partnership between Hitachi and Intel (s intc), which gives Western Digital an SSD play as well.
Sure, the big growth is in data warehousing and analytics, but inside many of these high-end platforms are hard disks from either Seagate or Western Digital. It may not be sexy, but providing a place to store bits still makes money, if not the high-end margins. Under the terms of the agreement, WD will acquire Hitachi GST for $3.5 billion in cash and 25 million Western Digital common stock valued at $750 million. The transaction has been approved by the board of directors of each company and is expected to close during the third calendar quarter of 2011, provided regulators let the deal through. There may be some anti-trust concerns.
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