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SanDisk acquisition makes Western Digital major flash player

Western Digital is taking its biggest step yet into the flash market, with its $19 billion SanDisk acquisition. The deal is the second major storage merger this month.

Western Digital Technologies Inc. (WD) is moving deeper into flash with its $19 billion SanDisk acquisition.

On Wednesday, the hard disk drive (HDD) maker, based in Irvine, Calif., ended weeks of speculation by confirming its plan for the SanDisk acquisition in a cash-and-stock deal, marking the second blockbuster storage merger in as many weeks. It comes on the heels of Dell's proposal on Oct. 10 to acquire legacy storage vendor EMC for $67 billion, a record sum for an IT industry merger.

The deal to acquire the memory chip vendor is expected to close around the third quarter of 2016, subject to approval by SanDisk shareholders. If approved, WD said the merger would create a company with nearly $20 billion in combined revenue and more than double the addressable market for the two vendors' storage products, estimated to climb from $37 billion in 2015 to $76 billion by 2017.

Steve Milligan will remain as Western Digital CEO and SanDisk CEO Sanjay Mehrotra is expected to join WD's board as a director.

WD said the SanDisk acquisition will boost its market share for solid-state drives (SSDs) from 6% to 32%, although it did not break out the total by consumer versus enterprise flash.

Jeff Janukowicz, vice president for SSDs and enabling technologies at IDC in Framingham, Mass., said the WD-SanDisk merger is a symptom of consolidation in storage. In addition to the Dell-EMC deal, semiconductor maker PMC-Sierra Inc. has been the target of multiple takeover bids, while Intel announced plans to invest up to $5.5 billion to build a 3D flash memory fab in China.

"It cements WD's position as a key supplier for next-generation infrastructure. We view HDDs, NAND and SSDs as a critical foundational element across many market segments, and now, WDC is positioned to address a much larger footprint in the storage industry," Janukowicz said.

WD has been one of the most active storage companies in making acquisitions in recent years. It paid around $4 billion for rival HDD vendor HGST in 2012, and made several smaller flash pickups since then. Over the past few years, WD/HGST has acquired SSD vendor sTec, all-flash array vendor Skyera, PCI-flash startup Virident Systems, flash caching storage startup VeloBit and object storage vendor Amplidata.

The WD-SanDisk acquisition follows a string of disappointing quarters for SanDisk, starting with its loss of Apple Corp. as a customer to rival Seagate last year.

SanDisk's portfolio includes PCIe-based flash pioneer Fusion-io, which it purchased for $1.1 billion in 2014. It also launched InfiniFlash all-flash arrays this year, using proprietary NAND cards instead of off-the-shelf SSDs.

"Western Digital was not really a major player in the SSD arena," said Eric Burgener, research vice president for storage at IDC. "This clearly moves them to, arguably, a market-leading position in that space. It also gets them into the secondary storage market, which should increase their total addressable market by at least several billion dollars over the next several years."

The WD-SanDisk acquisition follows a string of disappointing quarters for SanDisk, starting with its loss of Apple Corp. as a customer to rival Seagate last year. SanDisk on Wednesday said its quarterly revenue of $1.45 billion fell 17% year over year.

"This is a company that used to execute flawlessly, but then all of a sudden they’ve stumbled again and again," said James Handy, a flash analyst with Objective Analysis, based in Los Gatos, Calif. "Company presidents have to do what's in the best interest of the shareholders. I'm guessing that what SanDisk said was, 'We can either go into a period of very low stock prices, or we can accept this buyout.'"

Next Steps

Western Digital bails out struggling SSD vendor with sTec acquisition

Startup Skyera added to HGST's portfolio

SanDisk introduces PCIe flash memory cards

Dig Deeper on All-flash arrays