Western Digital Buys Hitachi GST, And Then There Were Four

Just as the sports-crazed among us have recovered from Super BowlSunday and are preparing for March Madness, Western Digital announced that it is buying Hitachi's Global Storage Technologies division, which will bring the harddrive market to a final four vendors a full month before the NCAA tournament does.The new Western Digital will be far and away the largest hard drive vendor,selling 49 percent of the world's hard drives.

This consolidation is just the final indication that the small harddrive that Clayton Christensen used as an example of disruptive technology inhis seminal book "The Innovator's Dilemma" has become a mature industry wheremanufacturing efficiency and scale matter more than innovative technology. While solid state storage has the potentialto replace spinning disk, it's coming to the market at the top end. Disruptive technology, in contrast, usually comes from the low end to eat into existing tech'smarket over time.

Back in the '80s, my then-partner Terry Kennedy and I decided toleverage the experience we (OK, mostly Terry) had gained writing BIOS driversfor CP/M machines and started selling hard disk subsystems for PCs and othercomputers. We had a parade of drivesalesmen in the office trying to get us to buy drives from startups likeRodime, Evotek, Maxtor and Conner Peripherals. A new market meant that there wereplenty of competitors, but also that we could end up buying a truckload of drivesfrom Evotek only to discover that the revolutionary plated media would corrodeabout four months after the drives were installed. As with today's array vendors, westuck to major suppliers like CDC after that fiasco.

After the $4.3 billion dollar deal closes, the total disk market willconsist of Western Digital; Seagate, which was the No. 1 vendor in 2010 on a dollarbasis but trailed WD with a 29 percent share by units; Toshiba, which bought Fujitsu's drivebusiness last year; and Samsung. Of the three, Samsung has the narrowest productline with desktop, laptop and microdrives, but nothing that spins over 7,200 RPM. Hitachi bought GST from IBM in 2002for $2 billion, so it will see a smallprofit on the sale to Western Digital.

Like Samsung, Western Digital had been specializing in capacity-orienteddrives for the past few years, with its 10K RPM Raptor and VelociRaptor drivesselling mostly to enthusiasts (though EqualLogic did use 73GByte Raptors in oneearly model system). WD SAS drives haven'tcaught on with the EMCs and NetApps, or even the Dot Hills and Nexsans, of theworld, as it didn't have a 15K RPM model and array vendors would ratherqualify one vendor's drives for the 10K and 15K RPM niches. Now, with Hitachi'shigh-end drives, its product line is complete. In fact, as usually happensafter one of these mergers, the company will have to prune the line as 15 1TByte models is afew too many.

Western Digital's management will run the combined company, and Hitachiwill gain a few seats on the board.