Toshiba is working with a division of Matsushita Electric Industrial, which is better known as Panasonic, to manufacture its 1.8-inch and 2.5-inch disk drives.

The 1.8-inch drives are used by a number of companies in the Mac space, including Apple (in its iPod MP3 player) and SmartDisk (in its smaller external hard drives).

Toshiba is facing increased demand for the drives. The company has reached full-production capacity, and chose to partner with another company, rather than invest in a new plant. The Matsushita division is called Matsushita Kotobuki Electronics (MKE).

MKE will manufacture 1.8-inch and 2.5-inch drives in Indonesia, while Toshiba will continue to produce drives at its factories. Production in Indonesia is scheduled to begin in April this year for 1.8-inch drives, and in the second half of this year for 2.5-inch drives.

Toshiba would not detail current drive capacity, or the extra capacity that MKE will provide. However, the company did say it is targeting monthly production of 300,000 units of 1.8-inch hard-disk drives in fiscal 2003.

The worldwide market for such drives jumped to 35 million in 2002 - from 29 million a year earlier - and is forecast to hit 43 million in 2003, according to Toshiba.

The two companies will also work together to improve the design of its small form-factor drives in future.