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SanDisk Gets SMART, Boosts SSD Portfolio
WDC STX AAPL
Flash memory storage vendor
SanDisk Corp. recently acquired SMART Storage Systems, a bellwether solid state drive (SSD) storage solutions provider. The purchase consideration includes $307.0 million cash and certain equity-based incentives for SMART Storage Systems’ employees. The acquisition will allow SanDisk to strengthen its position in the enterprise market for SSD storage.
SMART Storage specializes in providing SATA and SAS-based SSDs, which are supplied to tier 1 storage and server OEMs (original equipment manufacturer). Leveraging Smart Storage’s capabilities and intellectual properties, SanDisk will be able to enhance its existing enterprise SSD and software portfolio, gain economies of scale and increase share in the potential $1.6 billion enterprise SATA and SAS space. SanDisk will be retaining the company’s 250 employees.
The deal has already been approved by the boards of directors of both companies and is expected to close by August, pending certain customary and regulatory approvals. SanDisk expects the deal to be slightly dilutive to earnings in second half of 2013, before becoming accretive in 2014.
Earlier, SanDisk acquired flash memory software solutions provider, FlashSoft Corp. in Feb 2012 and enterprise SSD solutions provider Pliant Technology in May 2011.
At its recent analyst day (May 2013), SanDisk announced that it expects contribution from the SSD business to grow to roughly 35.0% by 2016. The company expects that 2 out of 3 notebooks will be enabled by flash in 2016, up from 1 out of 8 notebooks in 2012.
We believe that the synergies from the acquisition will help SanDisk to emerge as a major player in the fast growing flash memory market, thus lending greater stability to its revenue stream.
Restricted wafer capacity addition will boost better supply/demand metrics as well as pricing in 2013. Apart from this, we are positive on SanDisk’s focus on mobile-embedded products (as several new smartphones and tablets, Ultrabooks and other end-client PCs running on SSDs are slated for launch) and a long-term supply agreement with Apple Inc. ( AAPL - Analyst Report) .
But lackluster PC sales, European issues, stiff competition from Western Digital Corp. ( WDC - Analyst Report) and Seagate Technology plc ( STX - Analyst Report) (in SSD space) and currency fluctuations are concerns.
Currently, SanDisk holds a Zacks Rank #3 (Hold).