Hitachi plans to unload HGST hard drive unit

August 31st, 2010 - this article is free to republish with open public license

Hitachi is in preparation for a sale of it’s hard drive sector, or an initial public offering with Goldman Sachs chosen as the underwriters. The part of the company considered for the initial offering is Hitachi Global Storage Technologies, or HGST. The trend today is for a company to pursue both options initially, so that they get the best deal.

The company has recently become profitable again after a sales slump, with internal discussions centering around diluting the stock price, or issuing convertible bonds. The sale of HGST would produce capital in the short term without reducing the value of the main stock (HIT) , allowing Hitachi to pay creditors and maintain liquidity. The company has had a long history of being in business however, and was not unduly harmed by the economic turbidity of the 1930’s. It has the infrastructure in place to keep in operation during the post housing bubble slouch.

IPO Discussion

The hard-drive unit, Hitachi Global Storage Technologies “HGST”, is the world’s No. 3 hard drive maker and analysts said it could be valued at about $3 billion.

Although an IPO is the most likely scenario, Hitachi is also considering a sale of all or part of HGST, several sources said.

Banks gave presentations earlier this month to HGST in San Jose, California, where the unit is based, one source said. Another said bank teams had also traveled to Japan.

Last month, in an unusual move not tied to any event except the end of a financial quarter for HGST, Hitachi emailed analysts and fund managers an investor package highlighting the strengths of the unit.

Analysts said Hitachi may be looking to an IPO or sale to generate cash.

A sale might be a more attractive option, given the struggling U. S. IPO market and a sudden surge in tech-related M&A activity. Bankers have said more companies are now pursuing both options simultaneously.

“An independent business structure is ideal for a business like this one where price volatility is so severe and there is the need for such big capital investment,” said a Hitachi executive who declined to be named.

A Tokyo-based Hitachi spokesman said: “We have not made any decision on the future (of HGST). Our stance from before that we have been exploring various possibilities for the direction of the business has not changed. ”
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About Hitachi

Headquarters: Marunouchi Itchome
Founded in 1910, the companies stocks were first listed in tokyo’s stock exchange in 1949. Hitachi placed third in terms of revenue in the category of technology companies for 2009. “Hitachi” in Japanese is literally “sun rises” or “sunrise”. The company has a variety of production factiities around the world, manufacturing a large array of products. The oldest factory, regarded as the time honored base of operations is called Yamate Works.

Hitachi divides its operations into seven industry segments.

Information and Telecommunication Systems (21%)

* System integration
* Outsourcing services
* Software
* Hard disk drives
* Disk array subsystems
* Servers
* Mainframe computers
* Personal computers
* LCD projectors
* Telecommunications equipment
* ATMs

Electronic Devices (11%)

* LCDs
* Semiconductor manufacturing equipment
* Power tools
* Test and measurement equipment
* Medical electronics equipment
* Semiconductor devices

Power & Industrial Systems (26%)

* Nuclear, thermal and hydroelectric power plants
* Industrial machinery and plants
* Automotive products
* Construction machinery
* Elevators
* Escalators
* Railway vehicles (see Hitachi Rail)

Digital Media & Consumer Products (13%)

* Optical disk drives
* Plasma and LCD Televisions
* LCD projectors
* DVD players
* Mobile phones
* Room air conditioners
* Refrigerators
* MP3 players
* Washing machines
* Bread machines
* Vibrators
* Information storage media
* Batteries
* Air conditioning equipment

High Functional Materials & Components (15%)

* Wires and cables
* Copper products
* Semiconductor materials
* Circuit boards and materials
* Organic and inorganic chemical products
* Synthetic resin products
* Display-related materials
* Specialty steels
* Magnetic materials and components
* High grade casting components and materials

Logistics, Services & Others (10%)

* General trading
* Logistics
* Property management

Financial Services (4%)

* Leasing
* Loan Guarantees
* Insurance Services
* Invoice Factoring
* Invoice Finance
* Interactive Whiteboards

Financial Performance Chart

(Millions of yen)
No. Item The year ended March 31, 2006 The year ended March 31, 2007 The year ended March 31, 2008 The year ended March 31, 2009 The year ended March 31, 2010
1 Revenues 9,464,801 10,247,903 11,226,735 10,000,369 8,968,546
Japan 5,825,156 6,093,627 6,484,496 5,861,448 5,313,790
Outside Japan 3,639,645 4,154,276 4,742,239 4,138,921 3,654,756
2 Cost of sales 7,387,744 8,088,371 8,777,657 7,816,180 6,849,255
3 Selling, general and administrative expenses 1,821,045 1,977,020 2,103,562 2,057,043 1,917,132
4 Operating income (loss) 256,012 182,512 345,516 127,146 202,159
Ratio to revenues 2. 70% 1. 78% 3.08% 1. 27% 2. 25%
5 Income (loss) before income taxes and minority interests 274,864 202,338 324,782 (289,871) 63,580
6 Income (loss) before minority interests 120,516 39,524 52,619 (795,120) (84,391)
7 Net income (loss) 37,320 (32,799) (58,125) (787,337) (106,961)

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Hitachi divides its operations into seven industry segments. [ 3 ] These segments are listed below with the main products and services offered by each. The figure in parentheses shown with each segment is the percentage of total revenue (for the fiscal year ended March 2007) derived from that segment.

Information and Telecommunication Systems (21%)

Electronic Devices (11%)

Power & Industrial Systems (26%)

Digital Media & Consumer Products (13%)

High Functional Materials & Components (15%)

  • Wires and cables
  • Copper products
  • Semiconductor materials
  • Circuit boards and materials
  • Organic and inorganic chemical products
  • Synthetic resin products
  • Display-related materials
  • Specialty steels
  • Magnetic materials and components
  • High grade casting components and materials

Logistics, Services & Others (10%)

  • General trading
  • Logistics
  • Property management

Financial Services (4%)

Date August 31, 2010