Western Digital: Lead investor suggests spin-off of SSD division

Western Digital: Lead investor suggests spin-off of SSD division
Image: Western digital

A major shareholder of manufacturer Western Digital suggests a full spin-off of the SSD business into a separate company. Separating the HDD and SSD divisions internally is not enough to significantly increase the value of the company and therefore the share price.

The investor wants to see WD’s SSD business independently

Investment firm Elliott holds shares worth approximately $ 1 billion, or approximately 6%, in US storage manufacturer Western Digital. In a letter to the board, Elliott now proposes a full spin-off of the SSD business. In this way, greater focus should lead to better business results and, in the medium term by the end of 2023, the stock price is expected to double from the current approximately US $ 50 to US $ 100.

The investment firm is so confident in the idea that it has already committed over $ 1 billion in additional investment to the new Flash business, which will then be self-contained. Under the plan, this alone would have a market value of between US $ 17 billion and US $ 20 billion at the level of Western Digital’s current market value. A spin-off or a sale or merger with a partner is conceivable.

WD has also been operating in the SSD sector since 2016

Western Digital was born from the manufacture and sale of mechanical hard disk drives (HDDs). Long the market leader for HDDs, the company is now only number two with a 38% share behind Seagate with a 46% market share.

Western Digital: NAND flash sales and market share

Western Digital: NAND flash sales and market share

Western Digital: HDD sales and market share

Western Digital: HDD sales and market share

In 2016, Western Digital acquired SSD and NAND flash maker SanDisk for a whopping $ 19 billion, and with it its partnership with Kioxia (formerly Toshiba Memory). Since then, Western Digital has also been a major player in the flash memory market, accounting for approximately 14% of global NAND flash memory sales.

However, the financial success did not materialize

The high expectations that this HDD and SSD duplication would put the company in a better financial position have so far been disappointed. This is exactly what Elliott Investment Management denounces in the open letter to the board.

Investors seem to like the idea, as Western Digital’s share price has risen nearly 10 percent since the letter was published.

With partner Kioxia on an equal footing with Samsung

However, it remains to be seen what the board and management think about this idea. There is a lot of room for speculation about how this spin-off of the SSD business could happen. A merger with Flash partner Kioxia would be obvious. Together, a manufacturer of NAND flashes would emerge that, with a market share of 33%, would be nearly the same size as the market leader, Samsung, with its 34%.

If so, it would be the next big consolidation in this market in a short period of time. SK Hynix (13% market share) recently took over Intel’s NAND business, which is now merged into the Solidigm subsidiary.

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