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Western Digital Eyes Enterprise Storage

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Hard disk drive (HDD) manufacturer Western Digital Corp. (WDC - Free Report) made another major acquisition, after snapping up Hitachi Global Storage Technology (HGST) in Mar 2012. Western Digital or WD announced the acquisition of STEC Inc. , a solid state drive (SSD) manufacturer, for $340.0 million cash. No doubt, that the acquisition will push WD more toward the enterprise storage space, particularly in SSD.

Calif.-based STEC specializes in providing SSDs, flash cards, USB drives for enterprise applications and DRAM products for computing, communications, and embedded industrial applications. STEC serves blue chip customers such as EMC Corp. and IBM Corp.

Post acquisition, STEC will be integrated into HGST, which is now operating as a wholly-owned subsidiary of WD. HGST, which develops SSDs jointly with Intel Corp. (INTC - Free Report) , will retain STEC’s products initially and later on develop new products combining the capabilities of both the companies.

STEC’s board and shareholders have already approved the merger. WD did not specify but expects to wrap up the deal by the end of 2013, subject to fulfillment of other customary closing conditions. However, the financial impact of the deal on WD’s earnings was not disclosed.

As demand for HDDs slows down (mainly due to PC market slump), SSDs are poised to be the future of all storage applications in enterprise, server, data center or cloud computing spaces. Hence, the two key hard disk drive players, WD and its archrival Seagate Technology plc (STX - Free Report) are constantly striving to strengthen their position.

Seagate has already been dealing with SSD products for several years but has struggled to gain significant traction. But eventually, it solidified its position in the SSD space with the takeover of LaCie, a French consumer storage device maker (in May 2012) and collaboration with Virident Systems Inc, a dealer in flash-based storage class memory solutions.

In the past few months, both WD and Seagate have introduced a wide range of SSD products. But we believe that WD could have an additional benefit arising out of its close association with SanDisk Corp. to jointly develop solid state hybrid drives. Also, increased exposure into enterprise-class SSDs will lead to lower dependence on the PC market, which will prove to be beneficial for the company.

Currently, Western Digital has a Zacks Rank #2 (Buy).

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