Jan. 14 (Bloomberg) -- Toshiba Corp. and Fujitsu Ltd. are in final talks to combine their hard-disk drive businesses as the computer makers try to reduce costs, according to four people familiar with the discussions.

Toshiba, Japan’s biggest chipmaker, would have a majority stake in any joint venture, the people said. Fujitsu, a maker of chips, computers and software, is in discussions with several companies about its hard-disk drive business, spokesman Etsuro Yamada said.

Fujitsu shares surged as much as 8.6 percent and Toshiba gained on speculation a partnership may help the Tokyo-based companies improve margins and gain ground on the biggest makers of hard-disk drives for personal computers. The combined operations would have revenue of almost 700 billion yen ($7.8 billion), more than that of the disk-drive business of Samsung Electronics Co., the world’s fourth-largest manufacturer.

“The deal would be positive for both companies in that Fujitsu can jettison the money-losing unit and Toshiba can expand a potentially profitable business,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., which manages $6.1 billion of assets.

An agreement may be reached by the end of this month, the people said.

“It’s true that we are in talks with Fujitsu on the matter, but nothing has been decided at the moment,” Keisuke Ohmori, a spokesman at Toshiba in Tokyo, said by telephone.

Fujitsu advanced 5.3 percent to close at 415 yen on the Tokyo Stock Exchange, its biggest increase since Jan. 7. Toshiba rose 6 percent to 408 yen, compared with a 0.3 percent gain by the benchmark Nikkei 225 Stock Average.

Lower Earnings

Fujitsu, also Japan’s largest computer-services provider, will cut its operating profit forecast for the year, two people familiar with the matter said.

Operating profit, or sales minus the cost of goods sold and administrative expenses, may be about 80 billion yen to 100 billion yen for the 12 months to March 31, said the people, who declined to be identified before any official announcement. The projection compares with the 150 billion yen full-year profit Fujitsu forecast in October.

Fujitsu is reviewing its outlook and will announce any changes if necessary, the company, whose operations include production of personal computers, mobile phones and semiconductors, said in a statement.

Losing Cash

Fujitsu is losing money at most divisions excluding its main software business. The possible consolidation of its hard-disk drive unit with Toshiba’s business would be the latest in the industry as makers seek to reduce expenses and bolster profitability.

“Unless you are among the top players in this kind of a commodity business, it’s really hard to make a profit,” David Rubenstein, an analyst at Jefferies Japan Ltd., said by telephone today. Rubenstein has an “underperform” rating on Toshiba and doesn’t cover Fujitsu.

Seagate Technology, the world’s largest producer of hard- disk drives, bought magnetic-head manufacturer Maxtor Corp. in 2007, while its closest rival Western Digital Corp. paid $1 billion for component maker Komag Inc. last year.

Hitachi Ltd., the world’s third-largest maker of the drives, returned the business to profit in the quarter ended March 2008 after cutting about 11 percent of workers at the unit and closing plants. The operation had lost money since Hitachi bought factories from International Business Machines Corp. in 2002.

Toshiba is in the final stages of discussions to buy Fujitsu’s hard-disk drive business for as much as 40 billion yen, Nikkei English News reported today, without saying where it obtained the information.

Toshiba held a 7.2 percent share of the $32.8 billion global market for hard drives in 2007, making it the fifth-biggest producer, followed by Fujitsu with 6.9 percent, according to data from iSuppli Corp. Seagate Technology, Western Digital Corp. and Hitachi Ltd. are the world’s top three makers, based on the data.

To contact the reporter on this story: Mikako Nakajima in Tokyo at mikako@bloomberg.net

Last Updated: January 14, 2009 01:44 EST