Western Digital, Misunderstood Merger With Significant Upside And Limited Downside
Alex Zhao, CFA • 40 Comments
Alex Zhao, CFA • 40 Comments
The Street's Upcoming Affair With SanDisk
Aug. 19, 2014, 11:58 AM
- AMD (AMD +1.3%) has jumped into the PC SSD market courtesy of its Radeon R7 SSD line, offered in partnership with Toshiba-acquired OCZ.
- 120GB, 240GB, and 480GB drives are offered, and AMD promises the gamers it's targeting will get high-end performance: The 480GB model respectively has max random read and write IOPS of 100K and 90K - the use of high-end Toshiba NAND flash parts doesn't hurt. The 120GB model goes for $100, and the 480GB model for $290.
- Reviews are positive, though not quite glowing. TweakTown admits the OCZ Barefoot 3 controller used by the drives is "showing its age," but also praises the R7 line's performance and pricing. Bit-tech thinks mainstream users "will be best served" by rival Crucial and Samsung drives, but adds AMD's drives could be a good deal for some performance-focused buyers.
- Meanwhile, SanDisk (SNDK +1%) has launched its Ultra II SSD line, which replaces the older Ultra Plus line. The drives are aimed at mainstream buyers - the more costly Extreme Pro line targets enthusiasts - and come packaged with performance monitoring, cloning, and theft recovery software.
- Pricing is aggressive: SanDisk is charging $80 for the 120GB model, $115 for the 240GB model, $220 for the 480GB model, and $430 for the 960GB model.
Aug. 5, 2014, 10:41 AM
- Western Digital (NASDAQ:WDC) declares $0.40/share quarterly dividend, in line with previous.
- Forward yield 1.57%
- Payable Oct. 15; for shareholders of record Oct. 3; ex-div Oct. 1.
Jul. 30, 2014, 4:19 PM
- Western Digital (NASDAQ:WDC): FQ4 EPS of $1.85 beats by $0.11.
- Revenue of $3.65B (-2.1% Y/Y) beats by $80M.
- Shares -0.17% AH.
Jul. 23, 2014, 9:37 AM
- Just 5 weeks after announcing its $11.25/share purchase of Fusion-io (NYSE:FIO), SanDisk (NASDAQ:SNDK) has closed the deal.
- SanDisk plans a restructuring for Fusion-io, and to record restructuring, integration, and transaction costs. These costs are expected to impact non-GAAP earnings by $35M in Q3, and $15M in Q4.
- Fusion-io is also expected to record operating losses in the near-term. But SanDisk expects the deal to become accretive in 2H15.
- Previous: Street commentary on the deal, Fusion-io's M&A talks
Jul. 17, 2014, 1:54 PM
- SanDisk's (NASDAQ:SNDK) soft Q2 gross margin and muted Q3 margin outlook stems from a "strategic decision" to supply Apple with a huge volume of embedded NAND flash and SSDs at lower margins, says Susquehanna. Susquehanna, RBC, and others are defending SanDisk's move, arguing the near-term pain is worth the long-term benefit of a strong relationship with Apple.
- The company's below-consensus Q3 sales guidance is chalked up to supply constraints for 19nm NAND flash parts amid healthy demand from OEMs (likely including Apple) and enterprise SSD clients.
- SanDisk stated on its CC (transcript) it now expects its 2014 bit supply growth to be at the low end of a prior 25%-35% guidance range due to the constraints. Industry supply growth is still expected to total 40%.
- Needham (Buy) thinks SanDisk will ramp 19nm capacity in Q4, and expects a mix shift towards embedded NAND and SSDs to boost margins long-term. Morgan Stanley (Equal-Weight) isn't as enthusiastic. "We expected 14% Q/Q bit growth, 6% ASP declines, and 3% cost declines; instead they did 31% bit growth, 16% ASP declines, and 12% cost declines."
- Micron (NASDAQ:MU) continues following SanDisk lower. Needham recommends buying on the weakness.
Jul. 17, 2014, 12:46 PM
Jul. 17, 2014, 9:16 AM
Jul. 16, 2014, 5:37 PM
Jul. 16, 2014, 4:32 PM
- SanDisk Corporation (NASDAQ:SNDK) declares $0.30/share quarterly dividend. 33.33% increase from prior dividend of $0.225.
- Forward yield 1.11%
- Payable Aug. 25; for shareholders of record Aug. 4; ex-div July 31.
Jul. 16, 2014, 4:25 PM
- Though SanDisk (NASDAQ:SNDK) beat Q2 estimates, its gross margin fell to 48% from 51% in Q1. It remained above a year-ago level of 47%. Also: Q2 EPS benefited from $257M in share repurchases, a sizable increase from Q1 levels.
- Street expectations were high following a 53% YTD gain, an upbeat May investor day, and general optimism about NAND flash pricing.
- GAAP opex +21% Y/Y to $343M. Ahead of the Fusion-io deal, SSD solutions (higher-margin) made up 29% of revenue vs. 16% a year ago.
- Micron (NASDAQ:MU), which has also been on a tear, is following SanDisk lower.
- CC at 5PM ET, guidance should be provided.
- Q1 results, PR
Jul. 16, 2014, 4:10 PM
- SanDisk (NASDAQ:SNDK): Q2 EPS of $1.41 beats by $0.02.
- Revenue of $1.63B (+10.1% Y/Y) beats by $30M.
- Shares -7.6%.
Jul. 16, 2014, 9:56 AM
- Citing strong traction with cloud clients using hyperscale data center architectures (Google, Facebook, Amazon, etc.), Baird has upgraded Western Digital (WDC +2.7%) to Outperform, and hiked its PT by $25 to $120. Seagate (STX +1.6%) is following Western higher.
- Also possibly helping: Intel beat Q2 estimates and issued strong Q3/full-year guidance. The chip giant reported 6% Y/Y sales growth for its PC CPU reporting segment, and 19% growth for its server CPU segment.
- Gartner has forecast cloud demand will help drive a 25.1% CAGR for shipments for high-capacity business-critical drives from 2013-2018. On the other hand, soft enterprise storage sales and SSD cannibalization are expected to produce a -4.9% CAGR for performance-optimized business drives; Seagate has a stronger position here than Western.
- Western is hoping its helium drives will help it maintain its Web/cloud momentum. Seagate reports tomorrow, and Western on July 30.
Jul. 15, 2014, 5:35 PM
Jul. 9, 2014, 5:29 PM
- Global PC shipments fell only 1.7% Y/Y in Q2 to 74.4M, says IDC. That's much better than the firm's forecast for a 7.1% drop, and smaller than the 4.4% and 5.6% declines respectively seen in Q1 and Q4. Gartner is even more positive, estimating shipments rose 0.1%, thus ending a long string of declines.
- Unsurprisingly (especially given INTC's Q2 guidance hike), IDC thinks business PC upgrades stemming from Microsoft's (MSFT) ending of Win. XP support helped out. But it also says consumer demand was better than expected, with sales of low-end PCs (inc. Chromebooks) improving amid slowing tablet growth.
- Sales in the U.S. and EMEA (two high-ASP regions) rose, while Asia-Pac (exc. Japan) still fell by nearly double digits. IDC now thinks full-year industry growth "could get closer to flat, rather than the May projection of -6%."
- IDC's Q1 share data points to industry leaders gaining at the expense of smaller players: Lenovo (LNVGY) 19.6% share, +270 bps Y/Y. H-P (HPQ) 18.3%, +190 bps. Dell 14%, +180 bps. Acer (ACEIY) 8.2%, -10 bps. Asus (ASUTY) 6.2%, +30 bps. Everyone else 33.6%, -690 bps.
- HPQ +0.6% AH. Other names with strong PC exposure: AMD, NVDA, MU, STX, WDC, HTCH.
Jul. 8, 2014, 6:27 PM
- Applied Materials (AMAT) "made a compelling case that technology inflections could become tailwinds [for chip equipment demand] at the FinFET and 3D NAND transitions," writes Credit Suisse's John Pitzer after taking in the firm's analyst day (held at the Semicon West conference).
- Pitzer adds AMAT sees $10B+ in cumulative revenue opportunities from the deposition and etching markets related to 3D NAND flash investments. However, he thinks Lam Research (LRCX), which just offered a bullish analyst day outlook of its own, is a better 3D NAND play.
- Cowen's Timothy Arcuri argues strong FinFET (3D transistor) and 3D NAND capacity targets, together with healthy maintenance spend, "argues more re-rating for AMAT and the sector in general." At the same time, he's worried about the impact of 3D NAND growth on NAND supply, and thus the multiples afforded to SanDisk (SNDK), which has rallied strongly this year.
- AMAT remains confident the Tokyo Electron (TOELF) merger will close this year. The post-merger company will call itself Eteris. Analyst Robert Maire thinks AMAT/Tokyo will buy Entegris (ENTG) once the deal closes.
- KLA-Tencor (KLAC), though hiking its June quarter guidance, is a little cautious about near-term demand. "This is a quarter where we believe we're in a bit of a pause right now in the industry ... Bookings that we got, while strong, were really for foundry, and more for delivery and revenues that we'll see in calendar '15." Berenberg issued a cautious note last week.
- Trade group SEMI now expects total chip equipment spend to grow 20.8% in 2014 to $38.4B, and 10.8% in 2015 to $42.6B.
- Other industry names: ASML, UTEK, RTEC, KLIC, MTSN, ASMI, MKSI
Jul. 8, 2014, 11:28 AM
- Following checks with Japanese hard drive component suppliers Nidec and TDK, and research firm TSR, CLSA reports Seagate (STX -0.9%) is cutting its Sep. quarter forecast for industry hard drive shipments to ~133M from a prior 140M-145M.
- In April, Seagate guided for June quarter industry shipments to be "down a few points" from a March quarter level of 138M, but to also reach 140M-145M in each of the next 2 quarters. The market has been pressured by SSD cannibalization and weak enterprise storage sales, but has also benefited from stabilizing PC sales and healthy demand from Internet giants.
- Seagate and Western Digital (WDC -1.5%) are only down moderately on a rough day for tech. Seagate reports on July 17, and Western on July 30.
- Other names with strong industry exposure: MRVL, HTCH
Western Digital Corp. engages in the development, manufacture, and provision of data storage solutions. Its product portfolio includes hard disk drives and solid-state drives (SSD) marketed under the HGST, WD, and G-Technology brands. It also offers mobile drives for the notebook, PC, and gaming... More
Industry: Data Storage Devices
Country: United States
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