Western Digital Stock Rallies on Better Demand, Potential Flash-Memory Merger

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Western Digital

Shares were trading higher on Wednesday, helped by a pair of Wall Street research notes and a report that the company was close to a deal that would eliminate its flash-memory-chip business.

For months, there has been pressure on Western Digital (ticker: WDC ) to consider splitting the business into two. The company’s roots are in hard disk drives, a market dominated by the West and its rivals.

Seagate

Technology Holdings. The rest of the business is focused on flash-based memory products, which the West’s It was the result of its $19 billion purchase of SanDisk in 2016.

In the year In May 2022, activist investment firm Elliott Investment Management wrote a letter to Western Digital asking management to consider divesting the business. “By any objective measure, Western Digital has underperformed operationally, financially and strategically — directly because of the challenges of operating two separate businesses as part of one company,” Elliott said in the letter.

A few weeks later, the West agreed to consider secession. “We are actively engaging in a wide range of strategic and financial options to further optimize Western Digital’s value proposition,” said CEO David Gockler.

In May of this year, Western stocks rose on a Reuters report suggesting that talks with the company’s joint venture in flash memory production, Japan-based Kyoxia Holdings, were heating up. And now there are signs that a trade may be coming soon.

Bloomberg reported on Wednesday that Qiaoxia is in talks with Japanese banks to refinance a $14 billion loan, as Qiaoxia joins the Western flash business. The article reports that the combined company will be owned 50.5% by Western and 49.5% by Kioxia owners. According to Bloomberg, Kioxia is 56.24% owned by Bain Capital

Toshiba

It holds 40.64% stake. West’s hard drive business will not be included in the proposed merger.

Mizuho

Trading Desk analyst Jordan Klein said in a note to clients Wednesday morning that Western Digital’s shares look “best long” in the semiconductor sector, citing recent capacity cuts in the NAND flash memory business as a price increase in the market. Mizuho Asia analysts said they are hearing Chinese smartphone makers adjust their production plans in response to strong sales. “Better than Zia, [it] An official WDC split appears to be imminent, according to a Bloomberg report.

Western Digital did not immediately respond to a request for comment.

“Nobody likes WDC’s money-losing and high-cap NAND business,” Klein wrote. “Predominantly at WDC the current time is given little to no value. [enterprise value] $20.4 billion.

Meanwhile, BNP Paribas analyst Carl Ackerman raised his rating on WDC shares from neutral to $58. His view is that the demand for both NAND flash memory and “closer” hard drives, which are not immediately needed but are more readily available for off-site storage, is widespread. “We will see the stock move higher in the next few months when the strategic review is due to conclude,” Ackerman wrote.

Western Digital shares were up 4.5% at $45.90 in the afternoon.

Write to Eric J. Savitz at [email protected]