Commentary

Western Sees Flash For The Future In Deal For SanDisk

Western Digital’s $19 billion deal to acquire SanDisk yesterday is further evidence that although memory may not be what it used to be, it’s still worth an awful lot even as consolidation in the industry has reached a record $89 billion this year, including Dell’s acquisition of EMC last week.

The SanDisk deal “underscores the dramatic shift from traditional computers to handheld devices …,” write Samantha Masunaga and David Pierson for the Los Angeles Times. “While it’s a sound strategy for Western Digital to expand into flash memory, [analysts] say, demand for the technology will likely taper. That’s because smartphone and tablet markets are also maturing.”

Then there’s “the cloud” hanging over all things physical. 

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“Western Digital, a major player in the traditional storage industry, needs access to SanDisk’s NAND technology to better compete in the market for solid-state drives used in cloud computing, data centers, smartphones and laptops,” write Reuters’ Devika Krishna Kumar and Abhirup Roy. 

They also report that Western has the support of Toshiba with whom it has an intellectual property-sharing joint venture.

“The deal gives Western Digital entry into the flash storage market and position itself as a ‘broad enterprise storage company,’” Gartner research VP Joseph Unsworth tellsUSA Today’s Brett Molina, who points out that it also allows it to target more mobile computing devices.

“SanDisk's greatest challenge has been an ‘oversupply’ in the flash market combined with a waning interest in many of the products they offer,” Molina writes. “Not that many people are buying flash drives and memory cards as they were a decade ago,” Unsworth tells him.

“Western Digital's WD brand sells the My Book, My Cloud and My Passport drives to consumers, while the company's HGST subsidiary sells to OEMs and other businesses. SanDisk's flash memory products are sold to consumers, businesses and device makers,” reports Jon Brodkin for Ars Technica.

“With half of the spending on the manufacturing equipment coming from just three chipmakers — Samsung Electronics Co., Taiwan Semiconductor Manufacturing Co. and Intel Corp. — suppliers of the gear need to pool resources to keep up with the increasing pace of spending on research and development,” point out Bloomberg’s Ian King, Alex Sherman and Beth Jinks. 

“We knew that consolidation was going to happen and that scale was going to matter long term,” Western Digital CEO Steve Milligan tells them in an interview. “Scale matters. Having a broad set of resources matters.”

Milligan will serve as CEO of the combined company, which will remain headquartered in Irvine, Calif. Upon closing, SanDisk president and CEO Sanjay Mehrotra is expected to join the Western Digital board of directors, according to a release announcing the deal. “Both companies have strong R&D and engineering capabilities and a rich base of fundamental technologies with over 15,000 combined patents issued or pending worldwide,” it points out.

“Joining forces with Western Digital will enable the combined company to offer the broadest portfolio of industry-leading, innovative storage solutions to customers across a wide range of markets and applications,” Mehrotra says in the release. 

Earlier in the day Fremont, Calif.-based Lam Research announced it is buying KLA-Tencor, which is based in Milpitas, Calif., for about $10.6 billion to create a company that it says “will serve 42% of the wafer fabrication equipment market when the deal closes in the middle of next year,” according to an AP report in the San Jose Mercury News. The companies provide machines that make and evaluate chips.

“The combination would become the No. 2 supplier of chip-production tools, after Applied Materials, and spur tougher rivalries among the industry’s key toolmakers,” writes Don Clark for the Wall Street Journal. “Behind the ferocious activity, industry executives say, is a desire to carve larger positions in fast-growing market niches and to gain products and expertise for manufacturing more advanced chips.”

The second bullet point in the release announcing the deal says it “helps customers extend Moore's Law by delivering variability reduction at the atomic level.”

 Now there’s a benefit to build a campaign on, eh?

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