WDC - Western Digital Kioxia tie-up could rival Samsung for NAND leadership: Benchmark

2023-07-17 08:53:42 ET

Following last week's report that Western Digital ( WDC ) is trying to reach a deal with Japanese memory manufacturer Kioxia by next month, investment firm Benchmark said it expects the potential combined company to take on Samsung ( OTCPK:SSNLF ) in the all-important NAND market.

"With a mid-30% share, the combined flash entity could challenge Samsung for NAND share  leadership," analyst Mark Miller wrote in an investor note.

Miller, who has a hold rating on Western Digital ( WDC ) shares, added that most of the value of the deal would come from the hard-disk drive unit, with the deal potentially structured as a tax-free spinoff of Western Digital's flash business.

"For some time, we have believed a spin out of Western Digital’s flash division made sense," Miller added, noting that the company had hard-disk drive sales of $1.5B last quarter, up 3.2% sequentially but down 30% year-over-year.

For comparison, competitor Seagate Technology ( STX ) had $1.6B in hard disk drive sales last year.

Miller said that Seagate's ( STX ) current enterprise value is $17.9B, while Western Digital's ( WDC ) is $18.4B, so in theory, Western Digital's hard-disk drive unit should have an enterprise value closer to that of Seagate.

Miller also said the combined flash firm is likely to have a combined $10.7B in debt and though it could report losses into 2024, there is likely an opportunity for "significant" synergies.

"Depending on the degree of synergistic savings, the return to profitability for the combined flash venture may be accelerated," Miller added.

More on Western Digital

• Western Digital gains on report it's trying to reach deal with Kioxia by next month
• Is The Western Digital And Kioxia Merger Dead?
• Western Digital: Cyclical Value With Huge Merger Potential

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