The Ministry of Commerce of the People's Republic of China (hereinafter referred to as "MOFCOM") has received the application from Western Digital Corporation (hereinafter referred to as "Western Digital") for lifting the additional restrictive conditions by Announcement [2012] No. 9. Upon review of the application, the MOFCOM hereby announces as follows:

I. Background and review procedures

On March 2, 2012, the MOFCOM issued the Announcement [2012] No. 9, approving Western Digital to acquire Hitachi subject to conditions. In March 2014, Western Digital proposed to lift the obligations under (1) and (2) of the Announcement [2012] No. 9. Due to the investigation existing then over two suspected breaches against the Announcement, the application was not accepted. On January 30, 2015, after the case about Western Digital's breaching the Announcement was completely handled, the MOFCOM accepted and started the assessment over the application.

During the assessment, the MOFCOM met Western Digital for many times, requiring the latter to provide more materials, inviting suggestions from the competent government authorities, industrial associations, downstream enterprises, etc. in writing or by seminar, and commissioning the independent third party to conduct economic analysis and estimation over the application. In accordance with Anti-monopoly Law, the Provisions on Restrictions on the Concentration of Undertakings (Trial) and the Announcement [2012] No. 9, the MOFCOM examined the implementation thereof, change of market competition status, etc., and comprehensively evaluated the grounds and effect of lifting the restrictive conditions.

II. Implementation of Announcement

Announcement [2012] No. 9 imposes six more obligations on Western Digital, Hitachi and Viviti. According to the obligation fulfillment statement submitted by Western Digital and the supervision report on supervising the trustee, Western Digital fulfilled the obligations as follows during the implementation:

(1) Obligations under (1)
Western Digital had two actions against the obligations under the Announcement: First, on March 8, 2012, Western Digital transferred HGST U.S. as the U.S. subsidiary of Viviti to Western Digital Technology and made HGST a wholly-owned subsidiary under Western Digital Technology; secondly, in January 2013, the development department of Viviti / HGST was cancelled, and relevant employees were transferred to Western Digital for offices. By investigation, the MOFCOM believed that the above two actions breached the Announcement, imposed RMB 300,000 of fine and required Western Digital to correct by proper measures. In December 2014, Western Digital paid the fine. According to the supervision report submitted by the trustee and the Administrative Penalty Decision, Western Digital adopted correcting measures and fulfilled the obligations under the Announcement.

(2) Obligations under (2)
Following the obligations under the Announcement, Western Digital and Viviti reasonably determined capacity and production according to market demand and regularly reported to the supervising trustee on monthly basis. .

(3) Obligations under (3)
Following the obligations under the Announcement, Western Digital and Viviti have not substantially changed the previous business mode nor directly or indirectly forced the customers to exclusively purchase hard drive products.

(4) Obligations under (4)
Following the obligations under the Announcement, Western Digital and Viviti have kept putting funds in innovation, developing new products and reducing costs and created more innovative products and solutions for the customers.

(5) Obligations under (5)
Within 6 months after the examination decision was issued, following the obligations under the Announcement, Western Digital separated 3.5 inch hard drive business from Viviti in favor of Toshiba.

(6) Obligations under (6)
After the examination decision was issued and on approval of the MOFCOM, Western Digital commissioned the independent supervising trustee to supervise the fulfillment of obligations. The Trustee regularly reported to the MOFCOM about the fulfillment of obligations. According to supervising report, except two breaches against the Announcement during the obligation under (1), Western Digital fulfilled all the obligations required by Announcement [2012] No. 9.

The MOFCOM has assessed the fulfillment of obligations by Western Digital. According to the assessment, Western Digital has developed detailed operation proposal for the fulfillment of obligations according to Announcement [2012] No. 9, commissioned the supervising trustee to supervise according to the requirements of the MOFCOM, fully assisted the supervising trustee, and regularly reported to the trustee. During the implementation, the MOFCOM imposed administrative penalty on Western Digital for the two breaches against the Announcement, and Western Digital paid the fine and timely adopted correcting measures according to the Administrative Penalty Decision. In addition, Western Digital fulfilled all the obligations under the Announcement, and the MOFCOM has not received any report about its breach against the Announcement.

III. Analysis on Competition

In accordance with Anti-monopoly Law, the Provisions on Restrictions on the Concentration of Undertakings (Trial) and the Announcement [2012] No. 9, the MOFCOM evaluated the effect of lifting the restrictive conditions on market competition.

(1) Analysis on market competition

1. In portable applications and enterprise applications, SSDs have stronger competitive constraints over the traditional hard drives. According to the survey, in portable applications, SSDs have significantly stronger competitive constraints over the traditional hard drives than those at the end of 2011; competitive constraints have also emerged in the enterprise applications. It is expected that in future the competitive constrains over SSDs will keep growing in both fields. Firstly, the data show that since the Announcement was issued at early 2012 SSDs have experienced lower prices and higher output, where the growth became more significant in portable applications and enterprise applications. According to the analysis by independent third party, the gross profit of portable applications and enterprise applications is lower than that of other fields. It indirectly proves the higher competitive constraint of SSDs over the two fields. Second, in recent years, major original equipment manufacturers have increasing share in SSDs of portable applications. As of 2014, the use share of Apple SSDs reached 60%, while that of Lenovo, Dell and Hewlett-Packard were 10% to 20%. The official websites of all manufacturers show that the most laptops provide SSDs as configuration upgrading options. Third, the major manufacturers of SSDs have constantly increased their R&D of high-performance and high-capacity enterprise hard drive in enterprise applications. According to the prediction of industrial report, in next few years, the field will experience growing production capacity of SSDs and expanding market share. Fourth, relevant research institutions predict that the market SSDs will grow with growth rate over all expectation.

2. Overdue capacity increase of traditional hard drive industry. According to the survey, after the Thai flood in 2011, hard drive enterprise increased production capacity, but market demand had experienced no significantly increase. According to the present data, the capacity utilization rate of all traditional hard drive suppliers is about 80%, and the overdue capacity has significantly increased than that before the Announcement. Under the trend that SSDs constantly replace the traditional hard drive, the overdue production capacity of the traditional hard drive suppliers will further grow.

3. Western Digital and Hitachi are still key competitors of the hard drive market especially in the field of portable applications. Since 2012, the competition mode of traditional hard drive market has experienced little competition. The market players are still Seagate, Western Digital, Toshiba, Hitachi, Hitachi and Samsung hard drive. Among them, Western Digital and Hitachi have stronger market strength. In the entire traditional hard drive market, the combined market share of the two markets was 47%; in the conventional portable application market, the combined market share of the two has reached 50%.

4. The obligations have limited the full participation of Western Digital and Hitachi in competition. Both Western Digital and Hitachi cannot provide full range of products nor integrate product series of both parties due to the performance of the obligations, which may harm purchase of the customers. Meanwhile, Western Digital claims that lifting the independent constraint conditions will significantly lower production costs, reduce repeated payment and indirect costs in production and purchase, and make them fuller participate in market competition.

(2) Assessment Conclusions

According to the analysis of the above market competition , the MOFCOM believes that:

Firstly, market competition analysis shows that lifting some restrictive conditions may be considered: In the field of portable applications and enterprise applications, the competitive constraints of the solid state disks on the traditional hard disk drives are significantly increased; the traditional hard drive market has more surplus production capacity, reducing the possibility of the competition restriction alone or jointly by competitors; the above change in the market competition reduces the necessity to continue maintenance of all the restrictive conditions. Neither Western Digital nor HGST can provide a full range of hard disk products, and the production and development are independently from each other, which increase the cost, are not conducive to the development, detrimental to their full participation in the competition, and not conducive to the customer purchases.

Secondly, lifting all restrictive conditions may still have competition restriction impact on the market: The traditional hard drive market competition has little change, as Western Digital and HGST are the major stronger competitors in the market; lifting all the conditions may weaken the bargaining power of the original equipment manufacturers in the bidding and competitive bids, increasing the procurement costs which may be eventually transferred to the consumer; competitive constraint on the solid state disks cannot eliminate entirely the possible effects of the competitive restriction.

To sum up, lifting the obligation of the production, research and others to remain independent, and remaining the independence of brand from sales remain independent, can save the cost of Western Digital. Provision of a full range of hard drive products and full participation in the competition are in favor of customers purchasing. Meanwhile, the continuance of the competitions between the two independent sales team and two independent brands in the market may reduce the possible restriction impact of the concentration on the competition.

IV. Discussion and Decisions Review

Based on the above analysis and assessment, the MOFCOM feeds back the assessment opinions to Western Digital. After several rounds of negotiations, Western Digital agrees to continue the independence between the brand and the sales, and has submitted six specific programs for keeping the independence between brand and sales. After the assessment, the MOFCOM believes that the ultimate solution submitted by Western Digital can reduce the adverse effects on competition.

According to Articles 29 and 30 of the Anti-Monopoly Law, Articles 25, 26, 27 and 28 of the Provisions on Restrictions on the Concentration of Undertakings (Trial), requirements of the Announcement [2012] No. 9, the MOFCOM agrees to alter the restrictive conditions set out in the Announcement [2012] No. 9, and Western Digital shall be obliged to:

(1) Western Digital shall remain the independence between the sales and brands of Western Digital and HGST. To keep the independence between the sales and brands of Western Digital and HGST, and to ensure effective competition between them, Western Digital undertakes to take the following measures:

1. Western Digital is committed to maintaining the sales team of Western Digital, which sells the hard disk and other storage products under the existing or future brand or brands of Western Digital to customers.

2. Western Digital is committed to maintaining the sales team of HGST, which sells the hard disk and other storage products under the existing brands such as TRAVELSTAR and ULTRASTAR or future brand or brands of HGST to customers.

3. The sales team of Western Digital and the sales team of HGST may sell the full series of storage products to customers, manufactured by the company after integration, including desktop computers, portable applications, and products desired for high-capacity and high-performance enterprise solutions.

4. Western Digital will establish operational and verifiable processes and procedures to ensure that the two sales teams operate independently and provide products under two different brands. Western Digital will build a firewall between the two sales teams to ensure that they do not exchange competitive information.

5. The sales of Western Digital and the sales team of HGST are located in different geographical locations, and will not be united at the same facility.

6. Western Digital is committed to maintain a vice president to supervise the sales team of Western Digital, and another vice president to supervise the sales team of HGST. The two vice presidents will report to Senior Vice President of Sales, who will set the sales targets for the sales teams of Western Digital and HGST. Without prejudice to the independence between sales and brand, each vice president has the right to make independent decision on hiring or dismissing the member of their respective sales team, and to restructure the sales force to respond to market demand or customer needs.

7. The sales team of Western Digital and sales team of HGST make contact with customers, submit the business bids to customers and independently determine the products sold and their prices.

8. The sales of Western Digital and the sales team of HGST will not cooperate for the sales campaign and project.

(2) Western Digital shall not substantially alter the previous business models, force or force in a disguised form, customers to purchase exclusively the hard disks from the company.

(3) At with consistent speed in recent years, Western Digital will continue the input of research and development funds in the innovation field, to ensure that more innovative products and solutions will be brought to customers.

Western Digital shall develop a detailed operational plan to ensure the implementation of the relevant commitments, and accept the supervision of the MOFCOM and supervising trustee.

The above obligation shall be terminated two years later than the promulgation of the announcement. If Western Digital can provide sufficient evidence to prove a significant change in market conditions, Western Digital may file an application for lifting the relevant obligation to the MOFCOM, prior to the expiry of the period of two years.

The MOFCOM shall check the performance of the above obligation by Western Digital, through the supervising trustee or by itself. If Western Digital fails to properly fulfill these obligations, the MOFCOM entitled to extend the said period and deal with the fulfillment failure in accordance with relevant provisions of the Anti-Monopoly Law.

The Announcement shall come into force as of the date of promulgation. And the Announcement [2012] No. 9 shall be annulled.

The Ministry of Commerce of the People's Republic of China
October 19, 2015

Translated by Hou Zuowei