IBM announced it has completed an agreement to combine its hard disk drive operations with Hitachi's, forming a new company called Hitachi Global Storage Technologies. Under the agreement, Hitachi bought the majority of IBM's HDD-related assets for $2.05 billion. As planned, Hitachi paid 70% of the purchase price to IBM immediately and will pay the remainder to IBM over the next three years.

The new company will be based in San Jose, Calif., and managed by an independent team comprising executives from Hitachi and IBM's existing HDD operations. The chief executive officer will be Dr. Jun Naruse, Corporate Managing Director of Hitachi, Ltd., formerly CEO of Hitachi Data Systems, and the chief operating officer will be Dr. Douglas Grose, currently general manager of IBM's Storage Technology Division. Hitachi will select the new company's board of directors, and IBM will not be involved in its operations.

The new organization will bring together approximately 24,000 employees, about 18,000 from IBM and 6,000 from Hitachi, with major manufacturing operations at 11 locations around the world. Certain IBM HDD operations are not included in the deal.

Hitachi estimates the new company may deliver approximately $5 billion in sales in fiscal year 2003, and will target annual sales of $7 billion by fiscal year 2006. IBM and Hitachi have each agreed to multi-year HDD supply commitments from the new company. Hitachi plans to make the storage solution provider profitable during the next fiscal year (ending April 2004), I believe, this requires extensive restructuring that first of all includes massive lay-offs and maybe outsourcing some of the activities.