Storage Evolution: Western Digital To Buy SanDisk In $19B Bid For Flash Memory

Hard-drive vendor Western Digital Wednesday agreed to buy SanDisk in a cash-and-stock $19 billion deal, as the evolving storage industry focuses more on flash memory storage chips over magnetic disks.

SanDisk's flash memory chip portfolio will give Western Digital an advantage as the traditional hard-disk-drive storage industry struggles to keep up with a broader set of mobile products including tablets and smartphones.

"This transformational acquisition aligns with our long-term strategy to be an innovative leader in the storage industry by providing compelling, high-quality products with leading technology," said Western Digital CEO Steve Milligan in a statement. "The combined company will be ideally positioned to capture the growth opportunities created by the rapidly evolving storage industry."

[Related: Microsemi's $2.4B Offer To Buy PMC-Sierra Latest In Semiconductor Consolidation Wave]

Like many other storage vendors, Irvine, Calif.-based Western Digital is struggling with its hard-disk-drive business due to the popularity of tablet computers and smartphones. These mobile devices store data on flash memory chips, as opposed to the traditional hard disk drives, which are more popular on laptops.

However, Milpitas, Calif.-based SanDisk's portfolio, which includes mobile solutions such as iNAND embedded flash products for tablets, multimedia players and smartphones, could help Western Digital keep up with the mobile explosion's impact on the storage industry.

"I think this was a necessary move for Western Digital, particularly with the growth of SSD and other NAND technologies," said Kent Tibbils, vice president of marketing at ASI, a Fremont, Calif.-based system builder. "Moving into this space will not be easy as there are lots of competitors that have manufacturing advantages such as Intel, Samsung and Micron, but WD has a strong and loyal customer base … so [it] will have some good opportunity to make an impression on the market using their channel as a strength. It will be interesting to see what segments within the SSD market -- consumer or enterprise -- Western Digital places an emphasis on, but overall this is a good acquisition."

Western Digital's core business revolves around internal hard drives and external storage. While solid-state drives are for the most part less expensive than flash drives, NAND technology has better performance and reliability capabilities, and are increasingly being used in hard drives in computing.

"This is a deal I would expect, since Western Digital has been strong in the traditional hard-disk-drive space for many years, but has not been as active in the NAND storage business, which is the future direction for most storage," Randy Copeland, president and CEO of Velocity Micro, a Western Digital system builder partner based in Richmond, Va., told CRN. "SanDisk has a strong foothold in the NAND storage business, but it is increasingly becoming a commodity business now too, so they can leverage the scale and business relationships that Western Digital has cultivated over many years to win new business."

"Given our longstanding partnership with Western Digital, I am sure we will give their SSD products a hard look when we didn't really spend much time considering SanDisk for our PC and other products recently," he added.

Western Digital shares slipped 2.5 percent to $73 in pre-market trading, while SanDisk shares rose 5.7 percent to $79.50 pre-market.

The acquisition comes weeks after Unisplendour, a subsidiary of China-based company Tsinghua Unigroup, acquired a 15 percent stake in Western Digital.

Western Digital's planned acquisition of SanDisk comes as the semiconductor industry faces a wave of consolidation. In the past year, slowing growth and rising costs drove larger deals in the chip industry, such as Intel's planned $16.7 billion acquisition of Altera, and Avago Technologies' $37 billion buyout of Broadcom.

Semiconductor manufacturer Lam Research Wednesday said it will acquire chip maker KLA-Tencor in a $10.6 billion deal.

PUBLISHED OCT. 21, 2015