Western Digital: A major investor proposes a spin-off of the SSD division

Image: Western Digital

A major shareholder in manufacturer Western Digital is proposing a complete spin-off of the SSD business into a separate company. Separating the HDD and SSD divisions internally is not enough to significantly increase the value of the company and therefore the share price.

Investor wants to see WD’s SSD business independently

Investment firm Elliott owns around $1 billion in shares, or around 6%, of US storage maker Western Digital. In a letter to the board, Elliott is now proposing a full spin-off of the SSD business. In this way, a stronger concentration should lead to better trading results and in the medium term by the end of 2023 the share price should double from currently around 50 US dollars to 100 US dollars.

The investment company is so confident in the idea that it has already committed more than $1 billion in additional investment in the new Flash business, which will then be self-sustaining. According to the plan, this alone would have a market value of US$17-20 billion at Western Digital’s current market value. A spin-off or a sale or merger with a partner is possible.

WD has also been in the SSD business since 2016

Western Digital was born out of the manufacture and sale of mechanical hard disk drives (HDDs). Long the market leader in hard drives, the company is now only number two with 38% market share behind Seagate with 46% market share.

Western Digital: NAND Flash Sales and Market Share

Western Digital: NAND Flash Sales and Market Share

Western Digital: hard drive sales and market share

Western Digital: hard drive sales and market share

In 2016, Western Digital acquired SSD and NAND flash maker SanDisk for a whopping $19 billion, and with it its partnership with Kioxia (formerly Toshiba Memory). Since then, Western Digital has also been a major player in the flash memory market, accounting for approximately 14% of global NAND flash memory sales.

However, the financial success did not materialize

High expectations that this duplication with HDDs and SSDs would put the company in a much better financial position have so far been disappointed. This is exactly what Elliott Investment Management denounces in the open letter to the board of directors.

Investors seem to like the idea, as Western Digital’s stock price has risen almost 10% since the letter was published.

With partner Kioxia on equal footing with Samsung

However, it remains to be seen what the board and management ultimately think of this idea. There’s plenty of room for speculation as to how this spin-off of the SSD business might take place. A merger with Flash partner Kioxia would be a no-brainer. Together, a NAND flash maker would emerge that, with a 33% market share, would be almost the same size as market leader Samsung at 34%.

If so, this would be the next major consolidation in this market in a short period of time. SK Hynix (13% market share) recently took over Intel’s NAND business, which is being merged with subsidiary Solidigm.

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