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IBM Corp. and Hitachi Ltd., the world's second- and third-largest data storage systems providers, unveiled an alliance on Wednesday aimed at dislodging arch-rival EMC Corp from the top spot in the lucrative business.

Hitachi, Japan's largest electronics company, also agreed to take control of IBM's loss-making hard-disk drive business through a new joint venture, which will be owned 70 percent by Hitachi and 30 percent by IBM.

On the data storage side, the two will team up to develop open systems they hope can end EMC's long-standing dominance of the sector, which is considered a promising growth area despite a lull over the last year during the IT slump.

"A lot of growth is expected, but with competition increasing, there's no point sticking with it unless you're at the top," Hitachi President Etsuhiko Shoyama told a news conference in Tokyo.

Despite the cooperative deal, however, IBM and Hitachi products will continue to compete in the marketplace, and both said they aimed to become number one after making strong gains in the market over the past year or two.

News source: Reuters - IBM-Hitachi Pact Aims for the Top

"We are fighting for market share, they are fighting for market share," Walter Raizner, general manager at IBM's storage products division, told reporters after the news conference.

"What we intend to do is to work together on common components for future systems and then leverage and utilize these components," Raizner said.

The companies said the venture in hard disk drives (HDDs), a key component in personal computers, servers and storage devices, had yet to be finalized and several details, such as when it would be set up and how much Hitachi would pay for IBM assets, were still unknown.

Hardball in Software

Hitachi will hold a hefty majority of the venture, but IBM will provide most of the employees -- 18,000 versus Hitachi's 6,000, as well as most of the business.

Shoyama also said IBM's HDD business was worth $3 billion to $3.8 billion (400 billion to 500 billion yen) a year, versus Hitachi's 100 billion yen.

Analysts have been pressuring IBM to sell its HDD business, which was hit hard by the IT slump and contributed to IBM's poor first-quarter earnings performance.

IBM's Raizner acknowledged the problems, but insisted the operations could be turned around.

"It's a very troubled business at the moment ... (but) I think the base business is very sound, the base technology we have is outstanding," he said. "We think this business will turn around with Hitachi or without Hitachi."

Shoyama also put a positive spin on the disk drive deal, arguing that the venture would have the scale and technology to be a global powerhouse and predicting HDDs would play a key role as storage devices for next-generation home electronics.

While Hitachi takes on the HDD business's burdens, it will also be able to tap IBM's expertise in storage system software -- one of the most promising areas for profits and growth in the increasingly competitive storage business, and one where EMC has a huge lead.

"IBM has excellent technology in developing software," Shoyama said. "We want to work on expanding our operations by integrating our technologies."

IBM's Raizner said Hitachi was likely to license his company's "virtualization" software, which will hit the market within six to 18 months and will let data-storage machines made by different companies talk to each other within a network.

Hitachi's sudden rise in the data storage world early last year had spurred an enthusiastic rally in its share price, cushioning it from the downdraft in Japanese chipmakers' shares as the semiconductor sector faced its worst downturn ever.

The market appeared unimpressed, however, by Wednesday's dual deals with IBM. Hitachi shares ended 0.63 percent higher at 958 yen, underperforming a 2.16 percent rise in the Tokyo Stock Exchange's electrical machinery index.

IBM shares had closed 85 cents, or one percent, higher at $86.20 in New York.