Western Digital And Toshiba: The Settlement And The Guidance, Explained

Western Digital Corp (NASDAQ: WDC) settled its outstanding litigation and disputes Tuesday with Toshiba Corp that could have blocked the latter’s $18-billion sale of its chip unit.

But Western Digital’s concession was not a loss, according to KeyBanc Capital Markets.

The Rating

KeyBanc analyst Weston Twigg reiterated a Sector Weight rating on Western Digital with a $91 price target.

The Thesis

Under the settlement, Toshiba can sell its assets to the Bain Capital consortium, which includes Apple Inc. (NASDAQ: AAPL) and Seagate Technology PLC (NASDAQ: STX), but Toshiba Memory Corp. cannot share its internet protocol, Twigg said in a Tuesday note. (See Twigg's track record here.) 

The terms — including prioritization of the joint venture over company investments, cooperation of the operating teams, a commitment to invest evenly in future ventures and the extension of Flash Alliance and Flash Forward agreements — are seen to serve Western Digital well. 

“Overall, this is a positive event for WDC, as it removes a major overhang regarding access to future NAND capacity,” the analyst said. 

Western Digital raised its second-quarter guidance on resulting NAND pricing, boosting earnings per share from a $3.60 to $3.70 range to $3.80 and revenue from between $5.2 billion and $5.3 billion to a new midpoint of $5.3 billion.

Price Action

At the time of publication, Western Digital was set to open up 3.6 percent at $84.75.

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