SanDisk Is the Latest Buyout Candidate in the Semiconductor Space



SanDisk is in talks with Western Digital and Micron

According to a Bloomberg report on October 13, 2015, SanDisk (SNDK) has approached Micron Technology (MU) and Western Digital (WDC) to discuss its buyout. This news comes close on the heels of the recently announced acquisition of EMC (EMC) by Dell in the technology space for $67 billion.

SanDisk’s flash memory products are used in smartphones and laptops, data centers, and cloud computing. Micron makes dynamic random access memory (or DRAM), NAND, flash, and solid state drives (or SSD) for the computer, networking, graphics, and cloud server markets. Western Digital is engaged in the manufacturing of hard disk drives (or HDD).

In collaboration with Japan-based (EWJ) Toshiba (TOSBF), SanDisk operates flash memory plants. SanDisk purchases its NAND flash supply from Toshiba. No major announcement has been made about SanDisk’s acquisition yet.

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The rising cost of manufacturing chips is fueling consolidation in semiconductor space

The rising cost of manufacturing chips, the associated cost of research and development, and shrinkage in the customer base has forced chip manufacturers to opt for mergers. Mark Hung, a Gartner analyst, explains that currently it costs ~$100 million to produce a competitive chip. He stated, “It’s very different from a decade ago, when you could get a viable chip done with $10 million to $30 million dollars.”

The rising cost of manufacturing chips also forced IBM to divest its chip business in 2014. Earlier, IBM’s power chips were used by leading game console manufacturers like Sony (SNE), Nintendo, and Microsoft (MSFT).

From the beginning of 2015 until September, mergers and acquisitions in the semiconductor space have been valued at approximately $80 billion, according to Reuters. 2015 turned out to be the biggest year for chip deals since 2000.

You can consider investing in the PowerShares QQQ Trust (QQQ) to gain exposure to the tech sector. The ETF invests about 54% of its holdings in the technology sector.


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