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Hitachi sharpens hard drive efforts

After its acquisition of IBM's hard drive business, Hitachi is setting its sites on targeting new markets and doing what IBM couldn't--make money with hard drives.

Hitachi is focusing its efforts and targeting emerging markets to do what IBM couldn't--make money with hard drives.

Executives from a Hitachi and IBM hard drive joint venture, Hitachi Global Storage Technologies, will announce on Monday a new business strategy and products aimed at increasing the company's market share and reaching profitability.

Hitachi Global Storage Technologies was formed at the end of 2002 and is 70 percent owned by Hitachi and 30 percent owned by IBM. The San Jose, Calif.-based company is a subsidiary of Tokyo-based Hitachi, which will pay for the remaining 30 percent over the next three years. IBM had lost more than $500 million over the last two years in the hard drive business, which is notoriously competitive and yields thin margins.

"We want to extend beyond IT and develop four separate business units, each responsible for their own results," said Dr. Jun Naruse, chief executive of Hitachi Global Storage Technologies. Those units will target the mobile, desktop and server markets. The fourth will focus on emerging markets such as consumer electronics and automobiles.

The hard drive industry has been performing surprisingly well over the past few quarters despite the downturn in the PC market, according to research analyst Mark Miller with investment bank Hoefer and Arnett. Miller has not done any banking business for Hitachi Global Storage Technologies.

However, Miller expects the mobile and server hard drive markets to be affected by the same pricing pressures that have made the desktop market so competitive.

"Pricing in notebook and server (hard drives) has become more aggressive than desktops over the last six months, which will make it harder to make money," he said.

Miller added that he wouldn't be surprised if Hitachi abandoned the desktop hard drive market to concentrate on the server market. IBM had about 8 percent of the desktop hard drive market and has lost about half of its server market share to Seagate over the last couple years.

Exiting the desktop hard drive business would not be an unprecedented move for a manufacturer. Fujitsu left the market in 2001 to focus on mobile and server drives.

Hitachi also will be looking for growth opportunities for hard drives and addressing them with products such as its Microdrive. To that end, the company will announce Monday that it will have a 4GB Microdrive available this fall.

"The challenge is to find high-value segments in the consumer space, such as handhelds and digital cameras, for our drives," said John Osterhout, who is in charge of business strategy for emerging markets at Hitachi.

Hitachi on Monday will also announce that in the second quarter it will have 20GB and 40GB 1.8-inch and 20GB 2.5-inch drives available. The 1.8-inch drives will target mobile devices and the 2.5-inch drives will be for automotive applications. Hitachi will also have a 15,000 rpm 3.5-inch drive with a 73GB capacity available in the second quarter.