Western Digital forced to sell Hitachi assets

Western Digital's hopes of turning the hard drive industry into a duopoly have been dashed as the US Federal Trade Commission demands it sells its desktop hard drive manufacturing facilities to a competitor.

Western Digital had previously hoped to purchase Hitachi Global Storage Technologies, manufacturer of previously IBM-made hard drives, in a deal valued at $4.5 billion. While the FTC is allowing the deal to go ahead, it has a major caveat attached.

The revised terms of the acquisition require Western Digital to sell selected Hitachi desktop hard drive-related sales and manufacturing assets to rival Toshiba within 15 days of the acquisition.

That's a surprising proviso: as the FTC itself admits, Toshiba doesn't currently compete with either Western Digital or Hitachi GST in the desktop hard drive market. It does, however, produce a small number of drives for the mobile and embedded markets. As a result, the FTC claims, it has the experience required to become a third player in what would otherwise have been a duopoly controlled by Western Digital and rival Seagate.

The original terms of the acquisition have been ruled by the FTC as anticompetitive, violating Section 5 of the FTC Act and Section 7 of the Clayton Act by deliberately reducing competition in the marketplace. By positioning Toshiba as a third entry in the market, the FTC hopes competition will not be harmed.

'Protecting competition in the high-tech marketplace is a high priority for the FTC,' claimed Bureau of Competition director Richard Feinstein in a statement to press. 'This order will ensure that vigorous competition continues in the worldwide market for desktop hard disk drives, and that consumers are not faced with higher prices or reduced innovation as a result of this deal.'

As a result of the order, Toshiba will receive all the production and sales assets required to take Hitachi GST's place in the desktop hard drive market with a market share of around 18 per cent. Additionally, Western Digital will be forced to provide the company with access to its employees involved in research & development and production of desktop hard drives, as well as to licence all intellectual property required under fair and non-discriminatory terms. Finally, Western Digital will also be required to sell components to Toshiba until such a time as it can begin manufacturing its own.

Separate to the FTC-mandated deal Western Digital has also agreed to purchase Toshiba Storage Device Thailand, a subsidiary responsible for hard drive manufacturing that was badly hit by the recent floods in the country.