SanDisk Corp

In fiscal 2Q16, Applied Materials’ (AMAT) revenue was almost flat at $2.45 billion, beating the analyst estimates of $2.43 billion.

In fiscal 3Q16, Micron’s SBU (Storage Business Unit) revenue fell by 20% on both a year-over-year and quarter-over-quarter basis to $719 million.

Marvell’s rich patent portfolio makes it an ideal acquisition target for China, which is looking to acquire multinational semiconductor companies.

Let’s dig into the cause of Marvell’s accounting issues, see how one thing led to another, and look at how its new management plans to untangle the chaos.

Micron is moving a step further and developing 3D NAND Generation 2 technology. It expects to bring this into production in fiscal 2Q17.

Broadcom’s non-GAAP interest expense rose threefold from $41 million in fiscal 1Q16 to $150 million in fiscal 2Q16.

Hewlett-Packard (HPQ) generated investor returns of -14.1% in the trailing-12-month period and 4.8% in the trailing-one-month period.

Applied Materials expects memory spending to remain flat on a YoY basis. But it expects spending to shift from DRAM to the nonvolatile flash memory NAND.

Revenues and operating expenses In fiscal 4Q16, Western Digital (WDC) expects revenues in the range of $2.6 billion–$2.7 billion. The firm expects its gross margin percentage to improve compared to fiscal 3Q16. It also expects operating expenses of $475 million in 4Q16. Excluding the impact due to the interest expense from debt financing related to […]

The SanDisk (SNDK) and Western Digital (WDC) merger is expected to create a company with nearly $20 billion in combined revenue.

On April 29, 2016, Western Digital (WDC) announced its fiscal 3Q16 results. It reported revenues of $2.8 billion and net income of $74 million, with earnings per share of $0.32.

Seagate’s shares fell by 13% in the week ending January 22, after Mizuho cut its price target for STX from $38 to $32 and provided a “neutral” rating.

In fiscal 3Q16, Seagate reported revenues of $2.6 billion and a gross margin of 20.2%. Its net loss was $21 million, with diluted EPS of -$0.07.

After the announcement of its fiscal 1Q16 earnings, SanDisk stock rose by 0.8% to $76.50 on April 28, 2016. However, the very next day, the stock fell.

SanDisk started its business with removable products. The segment is one of its growth drivers and commands the largest share of its overall revenue.

SanDisk’s product mix consists of five segments: removable, embedded, enterprise, client SSD (solid state drive), and other. The company earns most of its revenue from removable.

In fiscal 1Q16, SanDisk’s (SNDK) revenue rose 3% YoY, topping analysts’ estimate and its own guidance. This was the first growth after four consecutive quarters of decline.

This earnings season is full of surprises for the semiconductor industry. SanDisk (SNDK) has now posted surprising results for fiscal 1Q16, which ended April 3, 2016.

Dell is planning to sell ~$9 billion of unsecured junk bonds backing the EMC Corp. (EMC) acquisition. Dell is largely expected to pay an interest rate of ~10% unless there is a major improvement in the bond market.

SHRAX’s assets were invested across 76 holdings as of March 2016, one less than a quarter ago. It was managing assets worth $12.6 billion as of March’s end.

While Intel (INTC) has been focused on its computing and data center revenues, its IoT (Internet of things) revenue grew significantly in 1Q16.

Western Digital and Seagate account for 80% of the global HDD market. In the last few years, the HDD market has shrunk, while the SSD market has expanded.

Recently, Seagate Technology (STX) announced its preliminary earnings results and lowered its revenue and margin estimates for fiscal 3Q16.

The data storage market is growing rapidly with the emergence of the cloud. Like Intel, Micron has been increasing its exposure in the storage space.

On a non-GAAP (generally accepted accounting principles) basis, Micron Technology’s gross margin fell from 34% in fiscal 2Q15 to 20% in fiscal 2Q16.

Micron Technology’s fiscal 2Q16 revenue and fiscal 3Q16 guidance fell short of analysts’ estimates. The company expects growth to pick up in fiscal 2H16.

Micron and Intel have developed 3D XPoint in a way that benefits from both DRAM (dynamic random access memory) and NAND (negative AND).

In July 2015, Micron and Intel companies announced 3D XPoint, their revolutionary non-volatile technology with cross-point structure.

Micron is differentiating its 3D NAND flash technology from that of peers. But the ScanDisk-Toshiba joint venture says its 3D NAND offers more capacity.

For 2016, Micron has set aside ~$5 billion in capital expenditure, of which ~$800 million is to be spent on one facility in Singapore and one in Idaho.

Micron expects DRAM supply to grow in the range of 20%–25% in 2016 and then to slow to less than 20% in 2017 because technology is reaching scaling limits.

Micron Technology expects NAND demand to grow at a CAGR of 40% between 2016 and 2019, driven by reduced costs and the higher performance of 3D NAND.

Micron expects DRAM demand to grow at a CAGR (compounded annual growth rate) of 20%–25% between 2016 and 2019, driven by migration to advanced technology.

From a purely NAV (net asset value) return standpoint, the Vanguard Capital Opportunity Fund has had a forgettable one-year period until March 18, 2016, as it stood tenth among its peer group.

Micron Technology (MU) forecasts that 16% of the mainstream server market would be equipped with 3D XPoint by 2020.

While Micron Technology (MU) expects growth in memory content could drive future growth despite the slowdown in the consumer market, it continues to invest in breakthrough innovation.

Micron is aggressively expanding its 3D NAND capacity. It aims to spend up to $2.5 billion of capital on ramping up production of 3D NAND Gen 1 and starting manufacturing of the Gen 2 chip.

The overlap of products and customers between SanDisk and Western Digital would help reduce $180 million in operating expenses over the next 18 months.

The merger will create a company with nearly $20 billion in combined revenue. It would be able to capitalize on the enterprise storage products market.

The merger was as a breather for SanDisk shareholders. They have been facing lower share prices after the price fell by 24% between March 20 and March 26, 2015.

Unisplendour backed out of the deal to acquire a 15% stake in Western Digital for ~$3.8 billion. Investors wondered if the merger deal would come through.

One of Western Digital’s top shareholders, Alken Asset Management, opposed the merger in its open letter to Western Digital’s board.

Shareholders’ verdict is out. Both Western Digital (WDC) and SanDisk (SNDK) shareholders approved the $17 billion merger.

Weaker shipments of smartphones, tablets, and notebooks also resulted in a 10%–11% drop in prices of eMMC and SSD (solid state drive) products in 4Q15. Revenues of the global NAND flash industry fell 2.3% quarter-over-quarter in 4Q15.

Samsung (SSNLF) started mass production of 3D V-NAND flash memory chips in May 2014, giving it the advantage of being a first mover.

Last week, Tsinghua Unigroup’s subsidiary Unisplendour announced that its board of directors decided to terminate its investment plan in leading data storage company Western Digital (WDC).

Alken stated that in light of changing market dynamics and the capital market scenario, the $19 billion price for SanDisk, which has been posting declining earnings in fiscal 2015, is too high.

In light of the changes in the business and capital markets, Alken is urging Western Digital to back out of the merger by paying a $184.4 million termination fee.

The ClearBridge Aggressive Growth Fund – Class A (SHRAX) had $12.1 billion worth of assets under management at the end of January 2016.

SanDisk and Texas Instruments joined the fray and reported their fiscal 4Q15 earnings on January 27. Explore this series for performance and growth prospects.

Samsung (SSNLF) accounts for 30% of the NAND flash market as of 3Q15. Other players in this space include Toshiba (TOSYY) and SanDisk (SNDK).

ClearBridge Aggressive Growth Fund’s top ten equity holdings in December included UnitedHealth Group (UNH), Comcast (CMCSA), SanDisk (SNDK), Broadcom (BRCM), and Anadarko (APC).

Though it failed to report revenue growth, IBM’s revenue and EPS of $22.1 billion and $4.84 beat analysts’ expectations by $20 million and $0.03 per share.

SAP will announce its fiscal 4Q15 results on January 22, 2016. On January 11, 2016, SAP reported preliminary revenue of 6.4 billion euros.

On January 19, 2016, IBM will release its fiscal 4Q15 results. In the last 14 consecutive quarters, IBM has not reported any revenue growth. IBM beat Thomson Reuters’s consensus EPS estimate of $3.30 in fiscal 3Q15.

EMC (EMC) generated investor returns of -15.1% in the trailing-12-month period and -5.9% in the trailing-one-month period.

Although Apple (AAPL) has continued to post record-breaking earnings in 2015, it still fell 3.8% for the year. The negative calendar year returns were the first since 2008.

As of the end of December 2015, Micron Technology has generated YTD returns of -59%, compared to 61% in 2014.

Toshiba is looking to start an evaluation system for the CEO and president of the company, in which 120 senior managers will hold a vote of confidence in January 2016.

Micron’s technology transition will slow down the output and revenue in the short term. The company will be able to meet advanced memory products’ needs.

Samsung has started mass production of 3D-NAND flash memory and has gradually increased its market share in this segment.

The ClearBridge Aggressive Growth Fund’s assets were invested in 78 holdings in stocks, bonds, and cash as of November 2015. The fund managed $14.04 billion in assets as of the end of November.

As of November 20, 2015, SanDisk (SNDK) generated investor returns of -25.69% in the trailing 12-month period and -4.39% in the trailing one-month period.

As of November 20, Western Digital Corporation (WDC) generated investor returns of -39.32% in the trailing 12-month period and -11% in the trailing one-month period.

Western Digital has a current ratio of 2.68x, higher than the industry median of 1.93x. Its quick ratio is 2.29x, higher than the industry median of 1.45x.

In 3Q15, SanDisk’s (SNDK) expenses for research and development decreased year-over-year to $212 million from $223 million in 3Q14.

The gross margin for SanDisk (SNDK) has been declining year-over-year from 49.35% in 3Q13 to 46.79% in 3Q14 and 41.51% in 3Q15.

The third-largest flash memory manufacturer in the world, SanDisk has a market cap of $15.04 billion. Western Digital follows with a market cap of $14.3 billion.

Growth in the NAND industry has slowed from more than 100% during 2005–2010 to ~50% during 2010–2015. Micron is responding to this trend by ramping up production of 3D NAND at its Singapore fabrication plant.

Micron is responding to the changing memory market by increasing investment in production technology. It will ramp up its DRAM capacity on 20nm technology and its 3D NAND capacity in collaboration with Intel.

In fiscal 2Q16, Symantec—as expected with the $8 billion sale of Veritas—announced the buyback of $500 million in shares.

SanDisk (SNDK), which was eagerly looking for a buyer, found one in Western Digital (WDC). WDC agreed to buy SanDisk for $19 billion.

Viacom’s investment in original programming Viacom (VIAB) reported its fiscal 4Q15 and fiscal 2015 earnings on November 12, 2015. The company is increasing its focus on original programming. An example of this is Viacom’s Nickelodeon network. During fiscal 4Q15, Nickelodeon had a large number of new TV shows with content for kids that had high […]

In the SanDisk–Western Digital merger agreement, the MAE clause lays out the circumstances under which Western Digital (WDC) can back out of its merger with SanDisk (SNDK).

Diversifying revenue streams and achieving scale is a big driver of the SanDisk–Western Digital merger. They offers similar products, and the combination will help them negotiate better with customers.

The combined KLA-Tencor and Lam Research expect to realize $250 million in cost synergies within the next 18 to 24 months of the acquisition.

If you set up the spread with the SanDisk-Western Digital merger assuming you are getting $85.10 plus 0.0176 shares of WDC, you are expecting a $9 spread.

In the SanDisk-Western Digital merger, Western Digital is paying about 2.6x trailing-12-month revenues and 10.6x trailing-12-month EBITDA.

While the Western Digital-SanDisk merger brings together the third and eighth players, respectively, in storage (which usually isn’t problematic from an antitrust standpoint), regulators can get very granular when they define submarkets.

With the SanDisk-Western Digital merger, the companies expect to generate annual run-rate synergies of $500 million per year within 18 months of closing.

The equity value of the SanDisk-Western Digital merger is about $19 billion using the five-day volume-weighted average price of Western Digital before the deal was announced.

According to the press release, the SanDisk-Western Digital merger is expected to close in the third quarter of 2016. If you assume a closing date of September 30, 2016, then the spread is trading at an annualized rate of 14.5%.

KLA-Tencor constitutes ~2.4% of the iShares PHLX Semiconductor ETF (SOXX) and 0.84% of the VanEck Vectors Semiconductor ETF (SMH).

By acquiring SanDisk (SNDK), Western Digital (WDC) aims to improve its market standing as a supplier that could reignite new pricing pressure in the storage market.

With the action on the acquisition front, including the SanDisk acquisition, Western Digital is geared up to increase and enhance its presence in the SSD arena.

To acquire SanDisk, Western Digital has offered SanDisk shareholders $86.50 per share. This is approximately 15% premium to SanDisk’s closing share price on October 20, 2015.

IBM’s 2Q15 results marked 13 straight quarters of falling revenue. This trend continued in fiscal 3Q15 when IBM failed to report any revenue growth.

In the previous part of this series, we saw that Seagate Technology’s (STX) lower-than-expected sales could give rival Western Digital (WDC) a competitive edge.

Western Digital (WDC) and Seagate have cutthroat competition in the HDD (hard disk drive) space, with the former accounting for a 43.6% share and the latter for a 40.1% share.

On October 8, 2015, SanDisk (SNDK) announced a partnership with Hewlett-Packard (HPQ).

Owing to China’s keen interest and demand in the semiconductor space, a China-based conglomerate would be an interesting choice to acquire SanDisk.

The Intel-Micron partnership led to the announcement of new 3D XPoint memory or 3D Cross Point Memory.

Western Digital (WDC) and Micron (MU) held 10.2% and 5.1% of the market share, respectively, in the enterprise SSD space.

From the beginning of 2015 until September, mergers and acquisitions in the semiconductor space have been valued at approximately $80 billion.

EMC houses storage, server, cloud, and big data under its business model. But IDC predicts that third platform technology will grow by ~20% by 2020.

In fiscal 2015, Micron developed a breakthrough non-volatile memory technology, 3D XPoint (cross-point), in collaboration with Intel.

As of September 3, 2015, Micron had $5.6 billion of cash and marketable investments.

In fiscal 4Q15, Micron’s storage division posted revenue of $848 million, down 6.5% year-over-year.

On October 2, 2015, Apple closed the trading day at $110.38. Based on this figure, it traded below its 100, 50, and 20-day moving averages

Cash-to-debt ratio measures a company’s financial strength. Apple’s cash-to-debt ratio in 3Q15 is 0.6x, which is lower than the industry median of 1.4x.