Hitachi Plans IPO to Spin Off Struggling Hard Drive Business

Hitachi (HIT) is preparing an IPO for its Global Storage Technologies unit, looking to finally rid itself of an unprofitable hard drive business that has been an albatross around its neck for years. In its announcement Tuesday, Hitachi said it plans to list the shares on either the New York Stock Exchange or Nasdaq.

The decision to use an IPO to spin off the wholly owned subsidiary that produces hard drives, solid state drives and external storage devices comes after years of looking at other alternatives. Two years ago, industry sources said Hitachi was entertaining the idea of hooking up with Toshiba and Fujitsu to create a new company in a deal that would slap together the struggling hard drive businesses of Hitachi and Toshiba with Fujitsu's storage business.

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According to sources at the time, the idea was to create strength out of weakness by combining the market share of all three companies to go head-to-head with market leaders Seagate Technology (STX) and Western Digital (WDC). But Seagate and Western are facing a tough environment too: Consider Apple's (AAPL) recent move, for example, to do away with hard drives altogether in its ultra-light MacBook Air notebook computers, as well as in its iPad tablets. Both devices rely on flash memory instead.

Western's CEO, according to a recent Reuters article, has expressed concerns about the potential ramifications for the hard drive industry of more computer makers offering tablet computers that rely on flash memory rather than hard drives. Analysts have speculated that, given Western's currently low share price, it may be ripe for a leveraged buyout, according to the report.

Seagate, meanwhile, said last month it was in talks with private-equity players to potentially be taken private again, according to another Reuters report. TPG Capital reportedly is the interested buyer: Should a deal come to pass, that would mark the second time this decade that Seagate has gone private. The hard drive maker stepped back into the public markets in 2002.

The rise of tablet computers isn't the only issue the hard drive industry faces. Historically, the industry has always suffered from high capital costs, as well as rapid changes to technology that can shorten the lifespan of its devices.

Hitachi is making a smart move in spinning off its hard drive business, especially in light of the rapidly growing tablet computer market. The question now is how much success it will find in selling its Global Storage Technologies IPO to investors.