While there has been no official comment between any companies, rumors have been circulating that SanDisk is the next target for acquisition from Micron or Western Digital.
Given the make-up of both companies, Western Digital Corp. (WDC) seems to be the most logical choice in terms of which company would gain the most through the acquisition of SanDisk, according to market research firm IHS.
Traditional hard disk drive (HDD) companies such as Seagate and WDC have been slow to pursue opportunities related to solid state drives (SSDs) and have even refused to get on board with the developing trend toward SSDs when the market was emerging. That allowed NAND flash players to enter the market directly and establish themselves ahead of traditional storage leaders. IHS says that in 2015, Samsung and Intel will finish with $5.5 billion and $2 billion in revenue from SSDs, respectively.
Combine this with the flash memory, IC business is being extremely more competitive than the storage business and requires significantly higher capital investment, particularly as the industry moves to 3D manufacturing. Samsung has been able to gobble up market share by aggressively targeting the flash market with pricing initiatives and improvements to overall technology (such as 3D NAND). A storage company such as WDC would have a steep learning curve trying to compete in the flash memory market, IHS says.
However, these companies may have little choice but to enter this market in order to get access to flash memory supply since SSDs are flash memory based. An easy way to get access is through acquisition and it is something that WDC has done in the past with buying smaller players Virident and Stec.
Meanwhile, SanDisk has been struggling in the SSD market this past year, particularly in the enterprise segment, IHS says. The company has not been able to keep up with the enterprise market moving to lower cost SATA solutions and have fallen to the fourth place position in the enterprise segment of the SSD market. If these companies were to combine, it might enable them to better compete with the likes of Samsung and Intel in the enterprise segment as they would have the scale, flash memory and WDC’s history as a storage vendor.
Another reason for the interest in SanDisk from WDC is that SSD penetration continues to grow. Of all the PCs sold, 30% now incorporate a SSD, IHS says. Dell says that it sees its corporate PCs with a 60% SSD penetration rate in 2016 and Apple is nearing 100% adoption of SSDs in its computers. Microsoft is also reaching 100% adoption of SSDs in its Surface tablets. IHS forecasts that the SSD market is expected to pass $13 billion in revenues this year and will pass HDDs in revenue by 2019 with $20.8 billion versus $19.6 billion.
As China looks to expand its semiconductor industry presence and capabilities, the potential deal between WDC and SanDisk becomes even more interesting because of WDC’s presence already in China. China faces tall barriers to directly acquisitioning U.S.-based companies because of laws and regulations regarding technology. Since WDC just received an injection of $3.8 billion from one of China Tsinghua’s subsidiaries for a 15% stake in the company, this puts WDC in a strong position financially for an acquisition of SanDisk. It would also help WDC to establish a strong semiconductor presence in China and help China in an indirect way with its chip-making ambitions.
Given that Micron already has a NAND flash business, it would be less incentivized to pursue an acquisition of SanDisk compared to WDC. Micron would not achieve the same level of benefits as can be found with a WDC/SanDisk deal.
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