IBM and Hitachi have announced a definitive agreement for the companies to transfer their Hard Disk Drive (HDD) assets to a new standalone company. The transfer is one part of a business alliance the companies announced in April. The companies hope the transfer of assets will help them be more competitive in their core businesses. According to industry insiders, IBM's HDD business has lost money in recent years.

Hitachi has agreed to purchase the majority of IBM's HDD-related assets for $2.05 billion, including the transfer of IBM's HDD-related intellectual property portfolio. Hitachi will initially own 70 percent of the new company and will make a series of fixed payments to IBM before assuming full ownership in 3 years.

The new company will be based in San Jose, California, and will comprise about 18,000 employees from IBM and 6000 employees from Hitachi. An independent team of executives drawn from Hitachi and IBM's existing HDD operations will manage the new company.

Hitachi estimates the new company will make about $5 billion in sales in fiscal year 2003 and $7 billion in sales by 2006. Both IBM and Hitachi will use the new company as their HDD supplier. The companies expect the agreement to close by the end of the year.

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