Hitachi Ltd. and International Business Machines Corp. on Tuesday announced an agreement to integrate their hard disk drive businesses under a joint company to be majority-owned by Hitachi.

The deal follows an agreement between the two companies announced on April 17 to form a strategic alliance in storage technologies and to set up a joint venture to integrate their HDD operations.

The joint company will be headquartered in San Jose, Calif., and managed by an independent team comprising executives from Hitachi and IBM’s HDD operations, they said.

Hitachi will initially own a 70 percent stake in the joint company, taking full ownership in three years, a joint press release said.

Jun Naruse, corporate managing director of Hitachi, will serve as chief executive officer of the new company, and Douglas Grose, general manager of IBM’s storage technology division, will be named chief operating officer, the firms announced.

Under the deal, Hitachi will pay $2.05 billion for the bulk of IBM’s HDD-related assets, including IBM’s HDD-related intellectual property portfolio.

After the deal is completed, expected to be by the end of this year, some 18,000 IBM employees and 6,000 Hitachi workers will be transferred to the new company, the two firms said.

Hitachi added that it expects the new company to make $5 billion in sales in fiscal 2003 and more than $7 billion in fiscal 2006.

“The purchase of IBM’s HDD business brings us the valuable business assets required for long-term success in this highly competitive market,” said Masaaki Hayashi, senior vice president of Hitachi.

“By combining HDD research, development, manufacturing, marketing and sales into an independently operating company, we are creating a new industry leader fully focused on the $20 billion disk-drive market,” Hayashi said.

10% share buyback

Hitachi Ltd. said Tuesday it will spend up to 300 billion yen to buy back up to 300 million shares, or about 10 percent of its outstanding shares, as part of its efforts to support its share price.

Hitachi said the share buyback plan will be subject to approval at a shareholders’ meeting in late June.

It remains uncertain whether Hitachi will implement the plan soon, given the $2.05 billion it must pay to International Business Machines Corp. for its hard disk drive-related assets, analysts said.

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