Western Digital to Buy Skyera, Boost SSD Storage Portfolio - Analyst Blog

Sensing the opportunity for growth, Western Digital Corp. (WDC) and its subsidiary Hitachi Global Storage Technologies (HGST) recently entered into an all cash agreement to purchase Skyera Inc. The companies have come together for joint technology development. Financial details of the transaction were kept confidential.

San Jose, CA-based Skyera specializes in providing solid-state storage systems for enterprise applications. Notably, research firm Gartner once introduced the company as the “Cool Vendors in Storage Technologies, 2012.”

Western Digital will incorporate Skyera into Hitachi Global. This will enhance HGST's existing SSD capabilities and expand its participation in the enterprise segment.

Currently, there is growing demand for SSD-based data center storage infrastructure and WDC will now be able to build on Skyera technology to service this demand.

The acquisition is expected to make Western Digital a more customer-focused storage company, with significant operational scale and a competitive product suite. We believe that this move will enhance storage technologies, enabling end-users to develop better storage solutions for improving the company's database management skills.

Per the deal, Western Digital will be acquiring Skyera's operations, along with all its facilities, equipment, intellectual property and working capital. This will not only give Western Digital access to Skyera's technological resources but also its skilled manpower.

Western Digital has been expanding its presence in the solid state drive (SSD) storage market due to sluggish demand in the PC market (which primarily relies on HDD). SSDs are now being used in servers due to the reduction in latency, which in turn helps in faster response to real-time applications. So focusing on SSDs for the enterprise segment looks like a smart move at a time like this.

Market research firm IDC anticipates revenues from SSDs to reach $7 billion in 2017 from $2.5 billion in 2012. Thus, the acquisition is a prudent move as it will help Western Digital strengthen its SSD portfolio and increase its market share.

To Conclude

We believe that the acquisition strengthens Western Digital's position in the storage market, especially compared to peers Seagate Technology (STX) and SanDisk Corp. (SNDK).

Additionally, we believe that the acquisition of HGST has already strengthened WDC's foothold in the data storage business. The company is well positioned to pursue more acquisitions given its healthy cash from operations of $827 million and cash balance of $5.16 billion on its balance sheet. While the launch of new storage devices will likely attract more customers, increased innovation will continue to push up R&D expenses, which could limit margin expansion.

Moreover, the company is expected to get good mileage from its cloud-based business. Cloud-based storage has become the order of the day as it allows users to access content through different gadgets such as smartphones, tablets and personal computers.

Currently, Western Digital has a Zacks Rank #3 (Hold). Alternatively, investors can consider Micron Technology (MU), a better-ranked technology stock sporting a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
WESTERN DIGITAL (WDC): Free Stock Analysis Report
 
SEAGATE TECH (STX): Free Stock Analysis Report
 
SANDISK CORP (SNDK): Free Stock Analysis Report
 
MICRON TECH (MU): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research