Western Digital, IBM to Interface on Disk Drives
Western Digital Corp. said Monday that it will team up with IBM Corp. to build new disk drives for personal computers.
IBM will sell Irvine-based Western Digital a series of computer components that read and write data from the disk and allow the computer’s disk drives to store more information than older techniques.
Financial terms of the agreement were not disclosed.
Analysts say the proposed deal allows IBM access to new outlets to distribute its products and gives Western Digital a jump on emerging technologies and manufacturing lead-in time.
Western Digital, one of the largest players in the disk-drive market, has suffered financially for more than seven months as its industry has been battered by oversupply and weak demand.
“It’s an excellent agreement for both of them,” said Matthew Russo, an analyst with Sands Brothers & Co. “It also helps that there was a preexisting tie between the two” companies.
That link is Chuck Haggerty, chief executive of Western Digital and a former IBM vice president. Haggerty, who worked at Big Blue for 28 years before joining Western Digital, said he had been in talks with IBM staff about the proposed agreement for the last six months.
“This gives us an advantage: to be able to introduce our products much faster--as much as six months faster,” said Haggerty, who expects the new product line to be introduced in 1999.
To thrive in this boom-bust industry, Western Digital and its rivals must continue to develop faster, larger and more powerful drives as the appetite for data storage increases with the proliferation of computers in business and the home. And often, they must bring them out quicker than the competition.
The industry’s current glut of troubles also has hurt Western Digital’s rivals, specifically Seagate Technology Inc. and Quantum Corp. Industrywide earnings and revenues aren’t expected to rebound for at least six months.
“This gives Western Digital a leg up by being very closely aligned to IBM’s technology group,” said analyst David Takata at Gruntal & Co. “You miss so much even if you’re a couple months behind your competitors.”
Industry observers have long wondered whether IBM would someday make a bid to take over Western Digital, particularly after the Irvine company’s stock price plummeted from $54 a share into the teens late last year.
But Haggerty insisted that Western Digital plans to continue operating as an independent company. He acknowledged that his connections to IBM may have led to those rumors, and that the recent talks over the deal announced Monday may have fueled them further.
On Monday, Western Digital stock rose 25 cents, closing at $19.88 a share on heavy trading on the New York Stock Exchange. IBM fell 25 cents, closing at $116.63 in moderate trading on the same market.
