Hitachi to cut 4,500 jobs

Mayumi Negishi

TOKYO: Japan's Hitachi Ltd. said on Thursday it would close a parts factory in Mexico and cut 4,500 jobs as it aims to shave costs, release new products and turn a profit on its hard drives by next business year.

But analysts said closing the plant may be too little too late for Hitachi to hold its own against bigger hard drive makers and potential competition from NAND flash memory in laptops.

While disk drive leader Seagate Technology predicts double-digit sales growth for several years on healthy demand for notebook computers, Hitachi is struggling to reverse four straight years of losses in calendar 2006.

Unless Hitachi, Japan's biggest electronics conglomerate, is willing to make a major acquisition to gain economies of scale, it may be better off pulling out of hard drives altogether, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"Why does Hitachi need to make HDDs?" he said. "Trimming operations may stop the bleeding, but I'm not prepared to be blown away by the size of the profit."

The Tokyo-based company, which holds a little less than 20 percent of the global market and trails Seagate and Western Digital Corp., said it would shut down a factory in Guadalajara, Mexico, by 2008, leading to a loss of 4,500 jobs or about 11 percent of the hard drive unit's global work force.

The Mexico factory makes hard drive sliders, which hold the read/write head. In turn, Hitachi said it would increase slider output at a factory in the Philippines as part of its efforts to boost efficiency by consolidating production and development.

Hitachi expects extraordinary losses of close to $100 million from the planned closure over the next two years, Hitachi Global Storage Technologies CEO Hiroaki Nakanishi told reporters.

The plant closure and consolidating HDD production by shifting disk production from Hitachi's Odawara plant, west of Tokyo, to a plant in Shenzhen, China, by the end of this year would cut costs by a cumulative $300 million in the five years to 2011, or an average $60 million a year, Hitachi said.

That compares with hard drive sales of $4.88 billion in 2006, up 9 percent from the previous year, while Hitachi's operating loss on its HDD business grew 60 percent to $375 million on sliding prices.

Consolidating HDD production would not mean an immediate improvement to profits, said Koichi Hariya.

Whether Hitachi's hard drives make a profit this year hinges on its new products and prices, to be released this year, he said.

Hitachi, which bought IBM's disk drive operations in 2002 for $2 billion, said it aimed to boost hard drive sales by up to 40 percent in calendar 2007. It said sales volume may slow until June but it expects them to pick up in the second half.

"It will be a struggle against price falls, but we will aggressively push forward new products and cut costs to gain a profit," Nakanishi said.

Hitachi's moves come as steep price falls speed up consolidation within the industry.

Japanese electronics parts maker TDK Corp said earlier this month it would take over rival Alps Electric Co.'s business in hard drive heads, used to read and write data on disks.

Alps Electric decided to exit the market when orders dwindled from customer Maxtor following its acquisition by Seagate.

Shares in Hitachi closed up 3.1 percent to 879 yen, compared with a 1.49 percent rise in the benchmark Nikkei average.

The electronics company warned last week it would fall into a deeper parent-only loss for the business year ending on March 31 because of appraisal losses on its HDD operations due to steep falls in the prices of these devices.