Hitachi said it is phasing out its small hard disk drive business as competition heats up with flash memory chips, and that will focus resources on larger-sized 2.5- and 3.5-inch drives. However, Hitachi will continue to offer 1.0- and 1.8-inch hard disk drives, which are mainly used in portable music players and other mobile devices, for its existing clients.

Large-sized hard disk drives used in PCs and servers hold a cost advantage over NAND flash chips, but profitability was hit hard in the market for 1.0- and 1.8-inch drives as storage capacity has increased and prices have come down for NAND chips.

Hitachi, which bought the hard drive unit from IBM for $2 billion in 2002, is in talks with U.S. private equity firm Silver Lake about the possibility of selling a stake in the division, sources familiar with the situation said in December.

Separately, another Japanese electronics maker, Fujitsu, said it has shelved its plan to launch 1.8-inch hard drives, underscoring the growing presence of NAND-type flash memory chips as the storage device of choice for portable electronics.

Fujitsu announced in January 2006 that it will jointly develop 1.8-inch drives with U.S.-based Cornice Inc for consumer electronics and aims to launch a 120-gigabyte model by April-September 2007.

But a Fujitsu spokesman said on Friday the plan is now on the shelf due to growing use of NAND flash chips.

Fujitsu currently makes 2.5- and 3.5-inch drives.