Today, Western Digital just agreed to give Toshiba the equipment and intellectual property required to build consumer-grade 3.5-inch hard drives, but Toshiba won't be paying in cash. In exchange, the Japanese storage company will give Western Digital a 2.5-inch HDD facility that's been shut down since the Thailand flood disaster late last year. It sounds like a crazy deal, until you remember what's at stake: Western Digital needed to divest part of its 3.5-inch hard drive business in order to satisfy the European Union's conditions for a merger with Hitachi this year.

Since Seagate already bought Samsung's hard drive business, the thought process went, a WD / Hitachi merger would leave the hard drive industry with only two major players in the consumer hard drive space, unless WD could be weakened appropriately. Now, Western Digital may have what it takes to merge with Hitachi at last, and we can all look forward to the repercussions until Toshiba takes up the slack. Both companies expect the deal to be approved next month.