Western Digital Corp.’s ongoing push into more lucrative storage products geared for corporate customers got a boost last week in another deal with China-based information technology provider and electronics manufacturer Unisplendour Corp.
The latest agreement between the two companies is expected to put Western Digital in position to market and sell data center storage systems in China. It’s also expected to give the Irvine-based company a foothold on developing products for that key market.
Beijing-based Unisplendour and its subsidiary, Unissoft (Wuxi) Group Co., will own 51% of the joint venture. Western Digital will hold the balance.
The new business, which has been approved by the boards of each company, will be based in China. It’s expected to be up and running by March, pending regulatory approvals—hurdles that have proved challenging for Western Digital in the world’s most populous nation.
China’s Ministry of Commerce held up the integration of its $4.8 billion buy of HGST Inc. for more than three years, ostensibly to consider antitrust concerns.
Regulators there finally gave the nod last month with stipulations: Western Digital has to offer both the HGST and WD brands of products in China and maintain separate sales teams for another two years.
Western Digital has said it expects the full integration of HGST will trim about $400 million in overhead annually worldwide.
The approval on the HGST deal came less than a month after Unisplendour agreed to pay $3.8 billion for a 15% stake in Western Digital. That deal, which was approved by regulators last week, came at a premium and gave the Chinese company a seat on the board of the disk drive maker; but it also included restrictions on Unisplendour’s access to Western Digital’s intellectual property.
The investment appears to have laid some groundwork in advance of the joint venture, which gives Western Digital inroads to capitalize on Unisplendour’s deep connections in the region and with the Chinese government.
Uninsplendour’s largest shareholder, Tsinghua University in Beijing, is considered the Massachusetts Institute of Technology of China. Its list of graduates includes Chinese President Xi Jinping.
Unisplendour, meanwhile, gains a link to Western Digital’s storage products—one of the most diverse lineups in the world—including unmatched developments in the burgeoning line of helium-based drives.
The products, developed by San Jose-based HGST, target the largest data center customers, a roster that includes streaming video giant Netflix Inc.; No. 2 PC maker Hewlett-Packard Co.; and Shenzhen, China-based Huawei Technologies Co., the world’s second largest networking equipment maker.
The hermetically sealed, helium-filled drives run about 39 degrees cooler than standard 4 terabyte air-filled drives—key benefits for large data centers that cost nearly as much to operate as to build, with cooling costs a major part of overhead.
“We saw a good demand for our enterprise hard drives, especially our high-capacity helium drives, with more than 1 million units shipped in the quarter,” Chief Executive Steve Milligan said in a recent analyst call following September quarter earnings.
The lighter, more energy-efficient and reliable helium drives provide about 33% more storage capacity than 6 terabyte drives.
It took HGST more than a decade to develop the drives, which carry a much higher margin that the traditional business and consumer drives that make up the bulk of Western Digital’s $14.5 billion in annual revenue.
HGST also targeted Tier 2 and Tier 3 manufacturers with the line of 8 terabyte helium drives released last year, as well as smaller cloud service providers in Europe and China, where Western Digital posted sales of about $2.7 billion in the 12 months through June, the end of its fiscal year.
Unisplendour has strengthened U.S. ties in the past year in deals with tech blue chippers Intel Corp. and HP. Its investment in Western Digital carries added importance in the disk drive maker’s pending $19 billion takeover of SanDisk Corp. in Milpitas.
Western Digital, under terms of the agreement, faced a $184 million penalty if the Unisplendour’s purchase of a 15% stake in the company fails to go through.
