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
Yesterday, 4:17 PM
Thu, Jul. 7, 11:05 AM
- A boost in guidance from Western Digital (WDC +4.1%) is helping to lift some other chip stocks.
- The strong read-through on NAND chip sales have stoked some buying action on Micron (MU +5.1%), Seagate Technology (STX +1.7%), and Applied Materials (AMAT +1.2%) on optimism that NAND pricing will hold up in the second half of the year.
- Previously: Western Digital higher after hours on lift in guidance; CFO to exit (July 6)
Thu, Jul. 7, 9:16 AM
Wed, Jul. 6, 5:39 PM
Wed, Jul. 6, 4:25 PM
- CFO Olivier Leonetti is leaving the company, effective Sept 1, to pursue other opportunities. Current EVP, finance, and Chief Strategy Officer Mark Long will take over his duties.
- Reflecting the ownership of SanDisk, WDC now expects FQ4 revenue to be about $3.46B, up from an earlier forecast of $3.35-$3.45B. Q4 EPS is seen at $0.72 vs. previous $0.65-$0.70. Non-GAAP gross margin is expected at 31%, flat from previous guidance.
- Shares +4.5% after hours
Mon, Jun. 27, 3:00 PM
Tue, Jun. 7, 12:24 PM
- Believing NAND flash demand will improve in 2H16 and that hard drive sales will see a modest rebound, Mizuho's Vijay Rakesh has upgraded Western Digital (WDC +3.4%) to Buy, and hiked his target by $13 to $53. Archrival Seagate (STX +2.4%) is following Western higher on a day the Nasdaq is nearly flat.
- Rakesh: "While WDC should give more FY17E details on its July 1 call, we have modeled weaker 2H GMs, weaker Samsung licensing, and see a mostly in-line 2H16 which would be a big change from the significant downside of the last four quarters." He's still worried about NAND flash share losses caused by 3D NAND delays at SanDisk, and notes sales of 10K/15K-RPM enterprise hard drives remain weak.
- Barclays and Cowen upgraded Western in late May, shortly before the company issued revised guidance that took the recently-closed SanDisk acquisition into account.
Wed, May 25, 10:54 AM
- Barclays' Mark Moskowitz has upgraded Western Digital (WDC +5.8%) to Overweight, and upped his target by $3 to $60. He argues the valuation is too low, that hard drives still have a future, and that multiples can grow as Western brings 3D NAND products to market (via just-acquired SanDisk) and lowers its debt load.
- The call comes a day after Cowen's Karl Ackerman upgraded to Outperform, while asserting the guidance Western is due to provide on Thursday "should help eliminate uncertainty" related to the SanDisk acquisition. He also cited low expectations, and declared SanDisk will help Western better serve enterprise and hyperscale (cloud data center) clients.
- Seagate (STX +3.4%) is following Western higher. Both companies were hammered in late April in response to weak earnings and guidance. Western is up 13% on the week.
- Now read Western Digital: Time To Be Optimistic
Tue, May 10, 5:53 PM
- Alaska Air Group (NYSE:ALK) has moved up another 1% after hours on news that it's headed to the S&P 500, replacing SanDisk (SNDK +1.4%), which is set to be acquired by Western Digital on Thursday.
- Correspondingly, Texas Roadhouse (NASDAQ:TXRH) has gained 1.3% postmarket as it leaves the SmallCap 600 to replace Alaska Air Group in the MidCap 400, and Cavco Industries (NASDAQ:CVCO) has jumped 7.3% as it heads into the SmallCap 600 to replace Texas Roadhouse.
- The moves are set after the close of trading on Thursday, to coincide with the closure of the SanDisk acquisition.
- Now read A Strong Quarter For Alaska Bodes Well For The Virgin America Acquisition »
Tue, May 10, 8:24 AM| Tue, May 10, 8:24 AM | 7 Comments
Fri, Apr. 29, 10:43 AM
- Seagate (STX -15%) has tumbled after missing FQ3 EPS estimates (revenue was in-line with what the company guided for in its April 13 warning) and guiding on its earnings call for FQ4 revenue of $2.3B, below a $2.61B consensus.
- Likewise, archrival Western Digital (WDC -12.6%) has tumbled after missing FQ3 estimates and guiding on its earnings call for FQ4 revenue of $2.6B-$2.7B and EPS of $1.00-$1.10, below a consensus of $2.92B and $1.34.
- Both companies have been stung by weak PC demand and SSD cannibalization of hard drives. Western estimates the FQ3 addressable market (TAM) for hard drives was 99.8M, down from 115.1M in FQ2 and 125M a year earlier. On the call, it forecast FQ4 TAM will be around 95M. CEO Steve Milligan: "We anticipate that hard drive demand in the June quarter will be slightly down from the March quarter, given continued softer PC demand and weaker than expected demand in performance enterprise."
- Western's hard drive shipments fell 21% Y/Y to 43.1M, with notebook, desktop, consumer electronics, branded, and enterprise sales all falling. Seagate's shipments fell 22% to 39.2M - enterprise and "client compute" drive sales fell sharply, while consumer electronics and branded shipments rose slightly. Both Seagate and Western's average drive capacity was slightly over 1.4TB, with Western reporting a $60 ASP.
- Seagate's non-GAAP gross margin fell to 22.7% (close to what was forecast in the warning) from 25.6% in FQ2 and 28.9% a year ago. Western's GM fell to 28.1% from 28.5% in FQ2 and 30.5% a year ago. Job cuts boosted each company's bottom line: Western's non-GAAP operating expenses fell 19% Y/Y to $477M thanks in part to efforts to integrate its HGST unit. Seagate's opex fell 21% to $439M.
- Western still expects the SanDisk acquisition (will lower the company's hard drive dependence) to close in the June quarter (Chinese approval is pending), and will give updated guidance after it does. It now expects $800M/year of cost savings related to HGST integration by the end of 2017, up from a prior $650M.
- Seagate: FQ3 results, earnings release, slides (.pdf)
- Western: FQ3 results, details, earnings release, datasheet (.pdf)
Thu, Apr. 28, 4:55 PM
- Western Digital (NASDAQ:WDC) is off 4% in postmarket trading as its fiscal Q3 missed on top and bottom lines as revenue and profits dipped substantially.
- Ahead of a planned acquisition of SanDisk (NASDAQ:SNDK) to come in Q2, net income (non-GAAP) fell to $283M from a year-ago $441M. Revenues dropped nearly 21%.
- Cash from operations came to $485M, leaving total cash and equivalents at $5.9B.
- "Computer usage continues to shift from PCs to mobile devices and enterprise workloads are moving increasingly to cloud-based architectures," says CEO Steve Milligan. "Our strategy to become a broad-based provider of media-agnostic storage solutions anticipates these and other trends."
- The company will provide guidance along with a conference call to come at 5 p.m. ET.
- Press Release
Thu, Apr. 14, 9:25 AM
Wed, Apr. 13, 7:28 PM
- Western Digital (NASDAQ:WDC) is down 4% after hours to $43.00 after archrival Seagate (down 6%) issued an FQ3 (calendar Q1) sales and gross margin warning.
- Among other things, Seagate blamed weak high-end enterprise hard drive demand, soft desktop product demand (particularly in China), and a decision not to compete in the low-capacity notebook market. Sales of 8TB nearline hard drives (benefiting from cloud demand) were strong.
- Western, due to lower its hard drive dependence by acquiring NAND flash giant SanDisk, reports on the afternoon of April 28. Seagate reports the following morning.
Mon, Mar. 14, 4:52 PM
- Western Digital (WDC -3.4%) had a rough day after Jefferies' James Kisner cut his target by $12 to $65, while arguing the pending SanDisk (SNDK -0.6%) acquisition and NAND flash market weakness (relevant to SanDisk's core businesses) will act as overhangs.
- Citi's Stanley Kovler downgraded SanDisk to Neutral due to the small arb spread that now exists relative to Western's buyout price, but also talked up the deal's potential and predicted shareholders will approve. He now expects $525M/year in synergies being achieved in the months following the deal's closing, and $1.145B/year by 2020.
- $750M of the 2020 synergies are expected to come from Western's ability to vertically integrate NAND flash via SanDisk, and $375M are expected to come from higher client SSD sales by Western to OEMs. $205M in "dis-synergies" are forecast related to customers choosing to limit the combined firm's market share.
- The notes come as Western begins marketing $18B worth of debt it's looking to raise to help pay for the SanDisk. The debt consists of $8.1B worth of bridge loans, $9B of term loans, and a $1B revolving credit line. Moody's has granted Western's debt a Ba1 (non-investment grade speculative) rating.
- Following a Tsinghua Unigroup subsidiary's decision to cancel a planned $3.8B investment in Western, SanDisk shareholders are due to receive $67.50 in cash and 0.2387 Western shares for each share they own.
Tue, Feb. 23, 9:17 AM
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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