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IBM gets government nod to sell hard drive business

The FTC has given IBM the go ahead to sell its hard disk drive business to Hitachi.

The U.S. Federal Trade Commission has given IBM the green light to sell its hard disk drive operations to Hitachi, bringing the deal that was announced last April one step closer to completion.

IBM announced that last week the FTC approved plans by Hitachi Ltd., Tokyo, Japan and IBM to combine their hard disk drive operations, forming a new company to be called Hitachi Global Storage Technologies.

In an effort to streamline its disk drive and high-end storage businesses, IBM struck a deal last April with Hitachi Ltd. to sell its hard disk drive operation and form a new standalone joint venture. The deal resulted in approximately 7,000 job cuts. More evidence of IBM's withdrawal from hardware manufacturing came last July, when it sold its Mylex business unit's RAID (Redundant Array of Independent Disks) controllers, subsystems, hardware and software technologies to LSI Logic Corp., Milpitas, Calif.

Industry expert John Webster, founder and senior analyst for the Nashua, N.H.-based Data Mobility Group LLC, said that IBM seems to be removing itself from the hardware manufacturing business.

"IBM is withdrawing by degrees from the storage hardware business," Webster said. "From a hardware perspective, in two or three years there's not going to be a lot of true blue 'invented here' IBM hardware."

Webster said storage customers are returning to the ways of old. "The buying public used to associate servers and storage in the same breath," he said. "There's some evidence that buying habits are reverting back due to the economy."

IBM's metamorphosis continued last month when newly anointed CEO and chairman of the board Samuel Palmisano decided to merge IBM's storage and server groups as a result of the formation of the company's new $10 billion on-demand computing group.

Since becoming CEO, Palmisano has spearheaded IBM's acquisition of PricewaterhouseCoopers Consulting and several software companies, the pending sale of its hard disk drive business, a realignment of the microelectronics unit and the outsourcing of desktop PC manufacturing.

Tony Prigmore, senior analyst with Enterprise Storage Group Inc., Milford, Mass., believes that having IBM's server and storage group in the same unit improves its ability to create and market solutions with vertical focus.

"The good news for users is that this reorganization will mean continued emphasis by IBM on maintaining its competitive advantage with solution bundling. The potential downside is that it is very unlikely any IBM storage will be marketed aggressively to non-IBM server platforms," he said.

IBM isn't the only company rearranging itself. Hitachi's motivations for purchasing the hard drive business are part of its own internal makeover.

In an announcement dated Oct. 31, Hitachi said it was pursuing "further structural reforms" in order to jumpstart sagging profits and generate new business opportunities.

Hitachi said Japan's bleak economy coupled with increasing global competition leave little hope that the company can expand its operations or raise its profitability with a portfolio focused on its existing businesses.

Hitachi's introspection has led it to a number of new ventures. Recently, the company reached agreement with Mitsubishi Electric Corporation on the integration of their respective semiconductor. Hitachi made Unisia JECS Corporation (now Hitachi Unisia Automotive, Ltd.) a subsidiary. Moreover, through separation and other internal Group restructuring, the Company has integrated manufacturing, sales and services, as well as consolidated resources in home appliances, industrial components and equipment, display devices, telecommunications infrastructure equipment and printer businesses, according to the company.

Hitachi purchase of Big Blue's drive business, which spans PCs, servers and storage equipment to digital consumer electronics, is an effort to enhance its technology and expand the scale of its business.

Hitachi's main storage targets include digital consumer electronics and mobile products, SAN and NAS storage solutions that couple storage management software and other products with disk array subsystems and security solutions.

Hitachi and IBM previously received antitrust approval for the proposed transaction from the European Commission, the Japan Fair Trade Commission, Brazil's Conselho Administrativo de Defesa Economica (CADE) and Taiwan's Fair Trade Commission.

Hitachi and IBM are waiting to receive approval from one jurisdiction. Let us know what you think about the story, e-mail Kevin Komiega, News Writer


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