Hitachi, Silver Lake talk about hard drives: sources

TOKYO (Reuters) - Japan's biggest electronics conglomerate Hitachi Ltd (6501.T) is talking to U.S. private equity firm Silver Lake about the possibility of selling it a stake in its hard drive unit, sources familiar with the situation said on Friday.

Hitachi has been considering selling a stake in the loss-making unit to bring in fresh capital and expertise. Reuters first reported in September that Hitachi had sounded out investment funds, including Silver Lake, about a possible deal.

Silver Lake, which focuses solely on making large-scale investments in technology companies, has been granted the chance to look at the hard drive unit to better be able to come up with ideas to help turn around the business.

Negotiations are still at an early stage and may still not bear fruit, at which point other private equity funds may offer up their solutions to the hard drive unit's woes.

Hitachi said in a statement that it was studying various measures to improve its hard disk drive business but that nothing had been decided.

Hitachi's shares closed 3.6 percent higher at 805 yen, outperforming a 1.5 percent rise in the benchmark Nikkei average .N225 as investors welcomed the report as a sign that Hitachi was taking steps to deal with poorly performing units.

Earlier the Nikkei business daily reported that Hitachi would likely sell a stake of just under 50 percent to Silver Lake.

"The report says it's not the sale of the entire HDD business, and uncertainties about the deal remain, but still it would mark a step forward in Hitachi's revival," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

Hitachi has not posted a profit in its hard disk drive business since buying it from IBM (IBM.N) for $2 billion in 2002 as disk drive prices have crumbled.

(Reporting by Alison Tudor, Nathan Layne and Taiga Uranaka; Editing by Malcolm Whittaker)