Hitachi said it is phasing out its small hard-disk drive business as competition heats up with flash memory chips. The electronics maker will focus resources on larger 2.5- and 3.5-inch drives.
Separately, another Japanese electronics maker, Fujitsu, said it has shelved its plan to launch 1.8-inch hard drives, underscoring the growing presence of NAND-type flash memory chips as the storage device of choice for portable electronics.
"We are not trying to recruit new customers for our small drives anymore...and as long as we don't win new customers, the size of the business is set to dwindle," a Hitachi representative said.
He said, however, that Hitachi will continue to offer 1- and 1.8-inch hard drives, which are mainly used in portable music players and other mobile devices, for its existing clients.
Large hard drives used in PCs and servers hold a cost advantage over NAND flash chips, but profitability was hit hard in the market for 1- and 1.8-inch drives, as storage capacity has increased, and prices have come down for NAND chips.
Hitachi's loss-making hard-drive unit, which competes with larger rivals Seagate Technology and Western Digital, shipped about 560,000 units of 1.8-inch drives from July through September, or 2.3 percent of its total hard-drive shipments.
Hitachi shipped only 3,000 units of 1.0-inch drives in the three-month period.
Hitachi, which bought the hard-drive unit from IBM for $2 billion in 2002, is in talks with U.S. private-equity firm Silver Lake about the possibility of selling a stake in the division, sources familiar with the situation said in December.
Fujitsu announced in January 2006 that it will jointly develop 1.8-inch drives with United States-based Cornice for consumer electronics, with the aim of launching a 120-gigabyte model by September 2007.
But a Fujitsu spokesman said on Friday that the plan is now on the shelf due to growing use of NAND flash chips.
Shares in Hitachi closed down 4.7 percent, while Fujitsu fell 3.1 percent, outperforming the Tokyo stock market's electrical-machinery index, which lost 5.1 percent.
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