Hitachi seen to exit small hard drive business

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TOKYO (Reuters) - Hitachi Ltd (6501.T), Japan's biggest electronics conglomerate, plans to exit the business of making small hard disk drives as demand shifts to flash memory chips, the Nikkei business daily reported on Sunday.

Hitachi's hard drive unit, Hitachi Global Storage Technologies Inc, has already stopped production of 1-inch hard drives and plans to stop shipping 1.8-inch drives around next summer, the newspaper said.

The Nikkei also said Hitachi rival Fujitsu Ltd (6702.T) has given up on plans to enter the market for small drives. Fujitsu had been developing 1.8-inch drives with U.S.-based Cornice with plans to bring a product to market in 2007.

No one at Hitachi or Fujitsu could be reached for comment.

Small hard drives are increasingly being replaced by flash memory chips as the memory storage device in video cameras and portable music players such as Apple Inc's (AAPL.O) popular iPod as flash memory capacity improves and prices come down.

Hitachi will focus on 2.5-inch and 3.5-drives, anticipating strong demand for the bigger drives that are used in personal computers and digital electronics such as DVD recorders, the Nikkei said.

The move comes as Hitachi considers selling a stake in its loss-making hard drive business to bring in fresh capital and expertise.

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

Toshiba Corp (6502.T) is the largest maker of 1.8-inch hard drives with a market share of about 70 percent, followed by Hitachi at 17 percent, South Korea's Samsung Electronics Co (005930.KS) at 8 percent and U.S.-based Seagate Technology STX.N at 5 percent, the Nikkei said, citing data from research firm iSuppli.

(Reporting by Nathan Layne)