Is Japanese conglomerate Hitachi looking to offload all or part of its hard disk drive subsidiary, Hitachi GST? So goes a Reuters report.
It quotes financial industry sources as saying that Hitachi has Merrill Lynch, the investment bank, talking to private equity funds such as KKR, Bain Capital and the Carlyle Group.
The problem with Hitachi GST is that it makes a loss as well as disk drives, $375 million in 2006, a heck of a lot of cash. Hitachi bought the operation from canny IBM five years ago and it hasn't made a profit since. The unit has about 20 percent of the global HDD business, lagging Seagate, number one, and Western Digital.
Why would anyone want to buy it though? Competition in the HDD market is fierce and successful suppliers have to be masters of technology, genii at supply chain organisation and devilishly good at development. It is no place for any but the most skilled at hi-tech manufacturing and development. Prices are continually falling and the market is under assault at the low end from flash memory.
Also, tellingly, the HDD market is still in a supplier consolidation phase. By concentrating on specialist niches suppliers like Toshiba can survive. By getting big and recovering development and manufacturing costs through volume sales the leaders can prosper. It looks as if Hitachi GST is too general to have a niche hideout handy and too small to survive the ferocious manufacturing and development wars.
It could be that the Hitachi high hiedikins can't face the prospect of selling out or merging with another HDD supplier, a competitor, and so are looking for help to revive their GST unit and somehow ramp it up into volume profit or find a niche and take it over.
Both ideas look costly. There are no empty or un-developed easy niches for HDDs to hand and trying to get big through increasing sales volume looks like a great way to pour good money, hundreds of millions of dollars of it, into a ship that is already showing signs of foundering with stormy weather unabating.