Hitachi Ltd. said on Tuesday its hard disk drive unit is preparing for a U.S. listing — a deal sources have said could be worth up to $1 billion, making it one of the largest tech IPOs in the United States in the past decade.
The offering of shares in Hitachi Global Storage Technologies, to be either on the New York Stock Exchange or the Nasdaq, is Hitachi's latest move to tone down its involvement in volatile businesses that forced the company to drop deep into the red in the past four years.
Instead, Japan's largest electronics conglomerate wants to focus more on stable and growing infrastructure-related businesses such as power plants and industrial systems, aiming to better compete with Siemens and General Electric.
"It is hard to expect strong growth from the HDD business in the mid to long term," said Shigeo Sugawara, senior investment manager at Sompo Japan Nipponkoa Asset Management.
"If Hitachi shrinks its exposure to the business by selling its holding in the unit, it can lower risks and improve its balance sheet."
The HDD unit, the world's No. 3 hard drive maker after Seagate Technology and Western Digital Corp, has been hurt by weakening growth in PC-related sales as tablet computers and other new devices not equipped with hard disk drives surge in popularity.
Funds raised in its stock market debut would be used for investment, research and development and other strategic operations.
Hitachi cut the profit outlook for its component device business, which includes hard drives, saying growth would not be as strong as expected.
It was the only division to suffer a forecast cut when the company hiked its overall operating profit outlook by 21 percent beyond market expectations.
"The business has not yet gotten to the level at which we would be recouping all of our investment, but the (July-September) results show that it can now compete equally with rivals," Hitachi Executive Vice President Takashi Miyoshi told a briefing.
"As we focus on social innovation businesses, we thought an IPO for this volatile operation was an option."
The unit was born out of Hitachi's $2 billion purchase of the hard drive business of IBM in 2002. The business, wholly owned by Hitachi, posted five years of losses until turning an operating profit in 2008 and 2009.
Sources have said Hitachi has hired Goldman Sachs Group Inc, Morgan Stanley, Bank of America Merrill Lynch, JPMorgan Chase & Co, Citigroup Inc and Nomura Holdings Inc to underwrite the IPO.
The timing of the initial public offering has not been decided. Hitachi said it would be based on economic and market conditions.
© 2014 Thomson/Reuters. All rights reserved.