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Western Digital Writeup

Western Digital is a leader in hard disk drives (HDDs) and enterprise solid state drives (SSDs), with its HDDs sold primarily to OEMs, distributors, and retailers under the WD, HGST, and G-Technology brands. It also owns SanDisk, a leader in flash memory cards and USB flash drives. The acquisition of SanDisk diversifies Western Digital away from declining HDD and PC markets into faster growing areas like SSDs and flash memory. However, the storage industry is highly cyclical and faces challenges from shifting technology and oversupply issues. The company expects $500 million in synergies from the SanDisk acquisition that should help drive earnings growth.

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Tim Dias
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163 views8 pages

Western Digital Writeup

Western Digital is a leader in hard disk drives (HDDs) and enterprise solid state drives (SSDs), with its HDDs sold primarily to OEMs, distributors, and retailers under the WD, HGST, and G-Technology brands. It also owns SanDisk, a leader in flash memory cards and USB flash drives. The acquisition of SanDisk diversifies Western Digital away from declining HDD and PC markets into faster growing areas like SSDs and flash memory. However, the storage industry is highly cyclical and faces challenges from shifting technology and oversupply issues. The company expects $500 million in synergies from the SanDisk acquisition that should help drive earnings growth.

Uploaded by

Tim Dias
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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Western Digital

Business Description
 WDC: Leader in Hard Disk Drive (HDD) and Enterprise Solid State Drives (eSSD). The company sells primarily into OEMs
(66%), through distributors (22%) and into retailers (12%). HGST, WD and G-Technology brands. HQ in Irvine, CA
 SNDK: Retail market share leader in flash memory cards and USB flash Drives. SNDK was a pioneer of NAND flash
storage and has significant presence in SSD. JV with Toshiba (Flash Ventures) provides vertical integration and mfg scale
and tech development

Company History
 xxxxxx

Cap Table
 xxxxxx

Positives
 Significant size, scale and market sahre
 Low leverage at 2.7bx PF (after bridge paydown with cash) and target leverage of <1.5x in ~3 years
o Mitigant: recent performance has been weak and its unclear where leverage will actually trough
 Strong FCF generation with combo of WDC and SNDK generating ~ 2.25b of FCF or 13% of 17.4b expected debt at close
 500m of Synergies 18 months after close (ramping to 1.1b by 2020) should drive EBITDA growth
 Significant liquidity (4.6b) with 3.9b expected in cash and 700m RC
 Strong expected growth in data and storage requirements (40% and 20% CAGR respectively 13-20)
 SNDK acquisition diversifies the company away from HDD and PC end markets which have been in decline
 Significant patent portfolio with 10k at WDC and 7k at SNDK
 Cloud storage growth driving demand for petabyte HDD solutions
 xxxxxx

Negatives
 Highly cyclical industry

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 Significant headwinds from decline in HDD into PCs both with PC sales declining and HDDs being replaced by SSD
 Outlook for removable storage is weak (-10% CAGR 15-20) as cloud storage makes everything available on any device at all
times (google Drive)
 Supply/Demand and industry capacity can be highly volatile resulting in difficulty forecasting price/volumes
 Technology risk as the memory industry can evolve significantly and rapidly. Current transition from 2D to 3D NAND
 Weak trends with WDC and SNDK both seeing EBITDA declines in 15 and into the LTM period
o Weak PC market and NAND in oversupply
 Significant supply coming online in NAND memory.
o Micron, Intel and Tsignhua Unigroup (state owned Chinese conglomerate) have all announced expansions
 High fixed cost business with and capital intensive with 6% PF capex to sales. WDC manufactures all its own magnetic
media and heads for its hard drives
 Customer concentration
o WDC: HP @ 11% and top 10 @ 44%
o SNDK: AAPL @ 14% and top 10 @ 44%
 Integration risk with WDC managing 2 major integrations while navigating choppy business dynamics
 xxxxxx

Thesis
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Catalysts / Possible Overhangs


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Recent Results:
 WDC: Miss on top and bottom
 SNDK: Beat on top and bottom

Segments and End Markets:


 xxxxxx

Raw Materials/Commodity Exposure


 xxxxxx

Toshiba JV:
 15 year history with SNDK provides vertical integration with Toshiba ensured supply and SNDK ensured scale, and R&D
sharing
 xxxxxx

Acquisitions
 Sandisk Acquisition
o WDC buying SNDK for 19b

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The Market/Market Share
 HDD market consists of five principal brands: HGST, Samsung, Seagate, Toshiba and WD
 Solid State: Intel, Micron, Samsung, SanDisk, Seagate and Toshiba
 Xxxxxx

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Company Strategy
 xxxxxx

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Management Team
 xxxxxx

Legal/Regulatory/Environmental
 xxxxxx

Historical EV/EBITDA, Price Graph and Holders


 xxxxxx

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Notes
 HDD: Hard drives are essentially metal platters with a magnetic coating. That coating stores your data
 SSD: Data is stored on interconnected flash memory chips that retain the data even when there's no power present
 HGST, a provider of high-value storage in enterprise markets, was acquired by WDC in March 2012. HGST was founded in
2003 through the combination of the HDD businesses of International Business Machines Corporation, the inventor of the
HDD, and Hitachi, Ltd.xxxxxx
 xxxxxx

Conference Call Notes


 xxxxxx
 xxxxxx

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