Toshiba, Western Digital Agree to Asset Sale, Swap Manufacturing Capabilities

Toshiba and Western Digital announced a deal today in which the two companies will essentially swap some manufacturing equipment with each other -- though which is getting the better deal is debateable. Western Digital has agreed to sell Toshiba certain assets related to the production of 3.5" hard drives "to address the requirements of the regulatory agencies that have conditionally approved or are continuing to review the company's planned acquisition of Hitachi Global Storage Technologies (HGST)."

Translation: We really want to buy Hitachi, so we're giving Toshiba a deal."

As part of that deal, WD has agreed to buy Toshiba Storage Device (Thailand). The key word in that sentence is "Thailand;" anyone who hasn't been asleep these past six months should feel a sense of foreboding worthy of a John Williams soundtrack. The TSDT facility is in the same region of the country that flooded and "has not resumed operations after the recent Thailand flooding."

Show them what they've won, Bob!

Given the cost of cleanup and the fact that a deal like this has been rumored ever since the floods began, WD probably has quite a bit of work to do before the facility is back in operational condition. It's a 2.5" HDD facility, which reflects Western Digital's focus on this market. The mechanical nature of hard drives means that all else equal, smaller platters will always have faster seek times than larger ones. Toshiba claims that the purchase will "enable the company to supply products covering all segments of the HDD market. It will also expand Toshiba's supply capacity in the market for near-line HDDs, which is expected to expand with the continuing growth of the server market, further reinforcing a strategic segment of the company's HDD business."

In reality, WD's deal probably has more to do with assuaging government concerns over competition than strategic alignment. Seagate finished its plans to acquire Seagate's HDD business just a few months ago -- now, with Toshiba shifting away from its damaged Thailand facilities, the magnetic storage business is increasingly a duopology. Indeed, government regulators might well be more worried than they are if it weren't for the rising star of NAND Flash, which has brought new players into the conventional storage fray.