Western Digital Corp.’s $4.8 billion acquisition of San Jose-based Hitachi Global Systems Technologies Ltd. should bring the Irvine-based disk-drive maker key corporate customers and significantly boost gross margins in the coming years.
“The gross margin contribution can be anywhere from 15% to 20% higher,” estimated Mark Moskowitz, an analyst in the San Francisco office of New York-based bank JPMorgan Chase & Co.
Western Digital, which finalized its Hitachi Global acquisition last month, typically sees gross margins of 15% to 25%. The company for years has relied heavily on the consumer market to drive sales.
The Hitachi GST buy provides entree to the growing server and storage market, “where spending is a little more resilient,” Moskowitz told the Business Journal.
Western Digital had been trying to gain in-roads in that lucrative segment, without much fanfare.
“[Now] they get the keys to that part of that castle,” Moskowitz said.
Hitachi recently has become an important strategic partner for server and storage manufacturers. That could prove beneficial for Western Digital, as data storage has become increasingly important with the spread of smart phones, tablets and cloud computing.
Before the Thailand floods late last year, Hitachi GST was starting to take market share from Cupertino-based Seagate Technology LLC, which overtook Western Digital in disk drive unit sales in the fourth quarter.
Western Digital’s disk drives go into computers, external storage devices, corporate networks and consumer electronics. Western Digital had been the global leader by number of drives shipped in recent years but second in revenue to Seagate, the sales leader in the more-expensive corporate drives.
The worst Thailand floods in decades forced Western Digital to suspend operations at both its plants in the region last year, which largely caused the sales and ranking decline.
Thailand is the world’s second-largest producer of disk drives behind China, and it is also a major supplier of hard drive components. Western Digital ships about 60% of its disk drives from Thailand, where it employs some 37,000 people.
New CEO
Jay Mitchell, appointed in March as president of Irvine-based clean technology startup FlexEnergy Inc., has been upped to chief executive.
Mitchell replaces Joseph Perry, who had the post since April 2009 and will remain as an adviser and investor.
“This is a planned transition that will allow FlexEnergy to more effectively raise capital for our continued growth, develop new products, and commercialize our technologies,” Perry said.
Mitchell took over the president role as FlexEnergy neared profitability after securing its first commercial projects.
Its flagship product is the Flex Powerstation—a turbine and other equipment that breaks down methane gas and converts it to electricity with almost zero emissions.
The company secured a bid in January to install and operate a power-generation system at the Santiago Canyon Landfill in Orange.
In November it installed the Flex Powerstation at Fort Benning in Georgia.
Gaikai Gets Social
Aliso Viejo-based software startup Gaikai Inc. has launched a Facebook app that delivers high-quality games directly to consumers.
Gaikai earlier this month began beta testing its technology that allows video game publishers to stream games through the social networking site and potentially reach hundreds of millions of new players in North America and Europe. The tests will allow users to test seven games for free.
This is a natural progression for Gaikai as it tries to capitalize on the wildly successful social networking and app gaming market, evident in such hits as Finland-based Rovio Entertainment Ltd.’s Angry Birds franchise and San Francisco-based Zynga Inc.’s CityVille, Mafia Wars and Words with Friends titles.
Gaikai, launched in 2008, has raised $48 million in funding and landed big-name clients along the way.
It partnered with Bentonville, Ark.-based Wal-Mart Stores Inc. last year to stream video games on walmart.com’s Gamecenter, where visitors can test games and then buy them, get previews and preorder hot titles.
It also has a deal with EA, which makes the Madden NFL and Tiger Woods franchises.
Executives told the Business Journal it planned to expand its revenue stream this year by launching gaming channels for its partners through the Internet and TV, and opening up sales channels by subscription, on a cost-per-use basis or as a revenue-sharing agreement.
