Marriage Over, Consummation Awaited

The year 2011 appears to be the year of
mergers and before the year ends, the hard disk drive (HDD) landscape
will be significantly changed. With the recent href="http://www.ciol.com/Semicon/Product-Watch/News-Reports/Western-Digital-unveils-new-hard-drive/147764/0/">Western
Digital (WD),
Hitachi Global Storage Technologies (HGST) merger, now, there are
only four players remaining in the HDD market space including
Seagate, Samsung, Toshiba and Fujitsu. WD recently announced that it
had reached an agreement to purchase HGST for $4.3 bn in cash and
common stock. The deal has already been approved by the respective
boards of both the companies, and is expected to close in the third
quarter assuming regulatory approval. Industry analysts feel that it
will obviously have an impact on the battle for marketshare between
Seagate and WD. Moreover, this will put pressure on the other players
in the industry to look at their options. According to iSuppli, with
the acquisition of Hitachi GST, WD now commands 49.6% of the HDD
market, leaving Seagate behind by 20.2%. Seagate now only captures
29.4% of the global storage market.

POSITIVE SIDE OF THE
MERGER

Speaking about the positives of this
acquisition, Khwaja Saifuddin Ahmad, senior sales director-Middle
East, Africa and South Asia, Western Digital said, “With this
acquisition, all the operations, entities and all factories which
were in the name of Hitachi GST have been acquired by Western
Digital. However, approval from regulatory authorities is still
pending, but both the companies have mutually agreed that everything
will be of WD.” He further added, “It is for the first time in
the HDD industry that two profitable companies are getting together.
Otherwise in all the previous mergers so was not the case. Hence, we
are looking at having positive synergies in both the teams.” On the
product front, Hitachi GST will enable WD to take a foothold in the
enterprise market, where WD previously only had a marginal presence.
This will also enable the new WD to earn higher margins.

ENTERPRISE SEGMENT IS
A BIG FOCUS

WD already dominates the desktop,
mobile, home entertainment and external drives segment. However, the
enterprise segment was something in which WD was trying to make its
presence felt. WDs internal drive contributes 90% of the revenue and
external drive contributes the remaining 10%. Moreover, WD wants to
have enhancement on the product, but not from the marketshare
perspective. Hitachi GST's products include internal and external
storage solutions for desktop, mobile, consumer electronics,
enterprise, and industrial environments. Just about four months ago
the company unveiled its first line of solid state drives (SSD) for
the enterprise. "Together, we can provide customers worldwide
with the most compelling and diverse set of products and services in
the industry, from innovative personal storage to SSDs. Hence in my
view, it is a positive mix of things. Look at the current product
launches in the HDD industry. WD were the first to launch such
products and Hitachi was the second one to catch up. Therefore, if
both the teams work together as a single team, it will create more
impact in the industry,” said Ahmad. He also clarified, “This new
business is not only limited to products and infrastructure. We will
also mix the two teams. Steve Milligan, the current CEO of HGST, will
be the president of the new business. The intention is to make the
best of the teams in the industry, and best products and technologies
from the industry.”

IMPACT ON CHANNELS?

“Our channel community is upbeat
about this acquisition. They are very enthusiastic about the two
companies marrying. From our side, there will be no cannibalization,
however, it is too early to comment on the future channel
strategies or the integration of channel partners,” said Ahmad.
Nevertheless, WD has completed partners' consolidation. In the past
one year, the company has come down from seven to four national
distributors including Redington, Global Infotech, Jupiter, HCL and
Neoteric Infomatique for external drives. “As of now, we have not
started communicating to Hitachi's partners, we are waiting to get
the approval from our authorities, until then Hitachi is Hitachi, WD
is WD,” Ahmad said.

WHAT THE CHANNEL SAYS?

Kaushal Khandor, VP-sales and
marketing, Neoteric Infomatique, which is a national distributor for
Western Digital and Hitachi both said, “It is indeed a surprise and
a bold move by WD to acquire Hitachi GST. The acquisition will result
in a customer-focused storage company, with significant operating
scale, strong global talent and the industry's broadest product
lineup backed by a rich technology portfolio. Together, they will
create a global company with strong representation in the enterprise,
desktop, notebook, branded and consumer electronics segments. Also
the approach is going to be customer-centric to the eventual
integration that prioritizes business continuity and ongoing customer
satisfaction. It will be interesting to see how this merger will
drive the next generation storage needs.” Khandor also shared his
plans for the new business, “Currently the focus is to maintain the
consistency in business and minimizing business disruptions till the
time the acquisition process is completed and later on align our
business strategies based on the directions of the new company. As
per the current update, the business is going to be the same for a
couple of quarters as the acquisition process will take its own time
and by then we will have a better and clear direction on the business
moving forward.” On the flip side, Ajay Kumar R Singhania,
director, Venktron Digital Systems, a previous distributor of Western
Digital said, “The merger of HGST with WD will not have an impact
on direct competitors of the two companies. We don't think the
WD-HGST merger will help us gain a marketshare, since, Seagate has 80
% marketshare in India. Moreover, Hitachi does not have a good market
presence. The only positive would be for Western Digital, as it can
increase its presence in the enterprise segment.”