Storage Weekly Notes: New Developments For Western Digital, SanDisk, Seagate In Focus

-6.15%
Downside
76.18
Market
71.49
Trefis
SNDK: SanDisk logo
SNDK
SanDisk

Western Digital Corporation (NASDAQ:WDC) has made headlines in the past few weeks, with China-based Tsinghua Holdings planning to invest $3.8 billion for a 15% equity stake in the hard drive manufacturer. [1] Meanwhile, rival Seagate Technology (NASDAQ:STX) completed the acquisition of Dot Hill Systems this week, after announcing the acquisition in mid-August. Flash-storage provider SanDisk Corporation (NASDAQ:SNDK) entered into a definitive agreement with tech giant Hewlett-Packard (NYSE:HPQ) to produce a new grade of memory chips, which could compete with products made by the Intel-Micron JV announced earlier this year.

Western Digital’s stock surged by 20% following the announcement, while Seagate’s stock also rose by over 10% through the week. SanDisk’s stock was up by about 25% since the beginning of the month with speculation surrounding a potential takeover driving much of the investor sentiment. Comparatively, the NASDAQ-100 and S&P-500 indices have been up by about 6-7% since the beginning of the month. Here’s a quick roundup on the developments in the storage industry.

Western Digital

Relevant Articles
  1. SanDisk Beats Consensus On Revenue, EPS As Removable Storage Sales Rebound
  2. SanDisk Earnings Preview: SSD Sales To Continue To Drive Results
  3. How Has SanDisk’s SSD Division Performed Over The Last Few Years?
  4. What Is SanDisk’s Fundamental Value Based On Expected 2016 Results?
  5. What Will SanDisk’s Revenue And EBITDA Look Like In 5 Years?
  6. SSD, Embedded & Removable Storage: What’s SanDisk’s Revenue & Earnings Breakdown?

Chinese state-backed Unisplendour Corporation – a subsidiary of Tsinghua Holdings – signed an agreement with Western Digital at the end of September, with the former investing $3.8 billion for a 15% equity stake in the latter. The newly issued shares cost Unisplendour $92.50 a share, which was more than a 30% premium to the market price at the time.  Western Digital’s management indicated that the investment will help facilitate growth and future strategic initiatives. Some market reports suggest that SanDisk could be a potential acquisition target for Western Digital. [2] Moreover, with the Chinese investment, Western Digital may be hoping it can finally get the long-awaited approval from the Chinese Ministry of Commerce (MOFCOM) to integrate its subsidiary Hitachi Global Storage Technologies (HGST) with the parent company. If the company gets the go-ahead to merge the two entities, it could lead to savings of about $400 million a year in operating expenses. [3]

See our full analysis for Western Digital

SanDisk Corporation

SanDisk has had a tough period for product sales this year, with an 18% year-over-year decline in net revenues to $2.6 billion through the first half of the year. Much of the decline was attributable to weakness in its client SSD channel, with a massive 55% y-o-y decline in product sales to $308 million for Q1 and Q2 combined. Similarly, embedded storage (-6%), removable storage (-16%) and components and wafers revenues (-18%) have also faced substantial, but comparatively modest, revenue declines in the first half of the year. However, enterprise SSD sales rose by 64% on a y-o-y basis to $360 million in the same period. Subsequently, SanDisk has been the center of news reports suggesting a potential takeover from a bigger firm. Besides Western Digital, the aforementioned Tsinghua group is reportedly interested in acquiring either SanDisk or Toshiba. [4]

SanDisk has made efforts to revive its image and has refreshed its product offerings to boost top line figures in the coming quarters. The company released the new 2.5″ form factor CloudSpeed Ultra Gen II SSD for cloud service provider and software-defined storage vendor environments in August. [5] SanDisk also announced an agreement with software-defined storage (SDS) solutions provider Nexenta Systems last month with an emphasis on open source-driven storage solutions. Additionally, the company announced a new deal with HP to co-manufacture a new grade of memory chips that could be a thousand times faster than existing flash memory. [6] The agreement between these two companies is similar to the joint venture between Micron Technology (NASDAQ:MU) and Intel (NASDAQ:INTC) to produce 3-D NAND Chips.

  • Trefis has a $66 price estimate for SanDisk’s shares, translating into a $13.6 billion market cap. This is about in line with the current market price, which rose from $56 at the start of the month to $64 at market close on Thursday.

See our full analysis for SanDisk

Seagate Technology

This week, Seagate announced that it has completed the acquisition of storage array and storage software provider Dot Hill Systems, which will now be an indirect wholly owned subsidiary of Seagate. Seagate announced the $645 million all-cash deal back in August. [7] [8] The integration of Dot Hill within Seagate could lead to cost synergies, enabling Dot Hill arrays to source Seagate hard drives at possibly lower costs than competing array makers. (Read more: Seagate Eyes The Flash Array Market With $645 Million Dot Hill Acquisition)

See Our Full Analysis For Seagate Technology

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Western Digital Announces Equity Investment By Unisplendour Corporation Limited, Western Digital Press Release, September 2015 []
  2. Is SanDisk becoming an acquisition target as the market consolidates?, The Register, September 2015 []
  3. WD and HGST: We tried to merge our two drive makers, MOFCOM said NO, NO, NO, The Register, December 2014 []
  4. Tsinghua Plans To Takeover Toshiba And SanDisk Corporation, Tech News, October 2015 []
  5. SanDisk CloudSpeed Ultra Gen. II SATA SSD Announced, Storage Review, August 2015 []
  6. Hewlett-Packard, SanDisk Join Forces on New-Breed Memory Chips, Wall Street Journal, October 2015 []
  7. Seagate Technology To Acquire Dot Hill Systems, Seagate Press Release, August 2015 []
  8. Seagate Completes Acquisition of Dot Hill Systems, HPC Wire, October 2015 []