J.P. Morgan: SanDisk-Western Digital Could Be 'Powerhouse'

• SanDisk Corporation SNDK shares are down 29 percent year-to-date, remaining below the $80 mark since end-March.
• JP Morgan’s Harlan Sur maintained an Overweight rating on the company.
• A potential bid for the company by Western Digital Corp WDC could create a powerhouse in enterprise flash, Sur commented.

Bloomberg reported that Western Digital is in advanced talks for a possible acquisition of SanDisk. Analyst Harlan Sur believes that Western Digital’s potential acquisition of SanDisk would make “strategic sense” given “SanDisk’s attractive flash memory assets including strong enterprise (SAS/SATA/PCIe), client and retail product portfolio.”

Western Digital is a market leader in the hard disk drive [HDD] space, with a share of about 45 percent. The size of this market is about $30 billion and is expected to remain broadly flat over the next 5 years.

Meanwhile, the SSD market, combining client and enterprise, is projected to reach about $14 billion in 2015 and grow at a 12-13 percent CAGR between 2014 and 2019. Within the SSD space, the size of the Enterprise market, which is a key focus for both Western Digital and SanDisk, is $6 billion, and is expected to grow by a CAGR of more than 20 percent between 2014 and 2019.

Sur noted that a combination of Western Digital and SanDisk would own about 28 percent of the enterprise flash SSD market and be the top supplier. He added that the acquisition of SanDisk would give Western Digital a foothold in the client SSD segment, “where attach rates have been growing (at the expense of HDDs) and expected to reach 20% by the end of 2015.”

The JP Morgan report added, however, “We acknowledge that a potential area of uncertainty regarding a transaction would be SanDisk's current contractual agreements with Toshiba under the SanDisk/Toshiba JV.”