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HITACHI GETS EU'S OK FOR IBM HARD DRIVE BUSINESS

Japan's largest electronics maker Hitachi won the European Commission's green light to buy IBM's loss-making hard disk drive business for $2.05 billion.

"The Commission has concluded that the transaction does not raise serious doubts as to its compatibility with the (EU) common market," the EU executive said in a statement.

The Commission said the deal would give Hitachi a leading position for hard disk drives for mobile applications. But it added that other hard disk drive manufacturers faced low barriers to enter into the mobile hard-disk drive segment.

The deal would free IBM from a troubled business segment and create an alliance for Hitachi that would compete for the leadership of the sector with EMC Corp.

Hitachi plans to combine the operations with its own in a joint venture, in which it will initially own a 70 percent stake and then fully own in three years.

Hitachi aims to make the venture profitable on an operating business in the next business year beginning in April 2003, when it sees revenues at $5.0 billion. But analysts have said extensive restructuring would be needed. Hard disk drives, similar to other components for computers, have experienced slack demand and sharply reduced pricing in the past year. While IBM claims to have invented the hard disk drive, industry watchers have said the company has lost money in the business in recent years.

The two companies said in April that IBM would sell the hard drive operations and collaborate with Hitachi on open source storage systems.

Hitachi estimates that the new company, which will be based in San Jose, California and employ some 24,000 staff at 11 locations around the world, should increase its sales to $7.0 billion by fiscal year 2006.

Hitachi and IBM, the second- and third-largest providers of high-end data storage systems, have made inroads into the market share of industry leader EMC Corp and now hope to target EMC's lead in the high-margin storage software business.