UPDATE 2-Toshiba to buy Fujitsu's hard drive unit to cut costs

Tue Feb 17, 2009 5:39am EST

Related Topics

* No price set for Toshiba to buy Fujitsu's hard drive unit

* Deal will help Toshiba boost market share, cut costs

* Combined revenue of both hard disk drives units is $7.5 bln

* Toshiba and Fujitsu's shares fall ahead of announcement (Adds analyst comment)

TOKYO, Feb 17 (Reuters) - Japan's Toshiba Corp (6502.T) said on Tuesday it will buy Fujitsu Ltd's (6702.T) loss-making hard disk drive business as it aims to increase market share and cut costs in a weak industry.

Heavily-debted Toshiba, facing mounting losses on its chip business, has not agreed on a price for Fujitsu's hard drive operations.

But if both companies agree on a price and Toshiba is able to secure funding, the expected deal would make Toshiba the world's biggest maker of drives used in laptops.

The global economic slump is hurting demand for electronics, but the focus on laptop drives gives Toshiba a long-term advantage over bigger rivals Seagate Technology (STX.O), Western Digital Corp WDC.N and Hitachi Ltd (6501.T), said Mitsubishi UFJ Securities analyst Yukihiko Shimada.

"The HDD (hard disk drive) market will be very tough for some time," he said. "But Toshiba and Fujitsu have this going for them -- they aren't saddled with lines for bigger hard drives, which I believe will be phased out over the long-term."

Toshiba, now the world's No.5 maker of hard drives, said it aims to capture more than 20 percent of the hard drive market by 2015, up from the combined 14 percent share Toshiba and Fujitsu now hold.

The deal, which both sides hope to close in April-June, would free Fujitsu from a string of losses on its hard drives.

Fujitsu's hard drive operations are expected to make an operating loss of 25 billion yen in the year to March. As a result of the deal with Toshiba, Fujitsu will incur a one-time extraordinary loss of 30 billion yen.

Fujitsu now expects a group net loss of 50 billion yen in the year to March, wider than its previous estimate of a 20 billion loss.

Fujitsu said it would also sell its hard drive media business to Showa Denko KK (4004.T) and the sale price would be decided in March for sale by June.

Fujitsu's hard drive operations now employ 8,000 people globally, while its hard drive media business employs 360 workers.

Ahead of the announcement, Toshiba's shares ended 3.9 percent lower while Fujitsu's shares eased 0.6 percent. Tokyo's electrical machinery index .IELEC.T closed down 1.8 percent. (Reporting by Mayumi Negishi; Editing by Chris Gallagher and Anshuman Daga)

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