WDC Closes Hoya’s Deal – Analyst Blog

A leading hard disk manufacturing company, Western Digital Corporation (WDC) recently completed the previously announced acquisition of magnetic media sputtering operations of Hoya Corporation and Hoya Magnetics Singapore Pte. Ltd (a group company of Hoya Corporation) for approximately $233.0 million.

 

Western Digital has taken over the facilities, equipment, intellectual property and working capital of Hoya’s media sputtering operations, based in Singapore. The company also acquired certain equipment of the Hoya’s facility in Japan.

 

Earlier, WDC had entered into an agreement to purchase the magnetic media sputtering business, of a Singapore based company named Hoya Magnetics Singapore Pte. Ltd. This acquisition is expected to augment the supply of hard disk drives of WDC.

 

Western Digital has always been active on the mergers and acquisition front. In the past few years, its acquisitions have added scale to its business operations and increased business volume. To develop its own disk technologies, the company acquired Komag, a developer and manufacturer of thin-film disk technologies for about $1.0 billion, back in 2007. The purchase helped Western Digital to further strengthen its position in the hard disk drive market.

 

This apart, in March 2009, Western Digital acquired SiliconSystems Inc. for $65.0 million. Western Digital, being a leading player in the storage industry with adequate technical and financial resources has the ability to increase expense in the existing market. Besides, SiliconSystems’ intellectual property and technical expertise are proving to be additional building blocks for addressing emerging opportunities in the company’s existing markets.

 

Western Digital is one of the largest manufacturers of hard disk drives. The company’s third quarter 2010 results exceeded the Zacks Consensus Estimate of $1.55.The company is taking measures to expand its business in Asia and enhance its product portfolio. The high cash generation ability is another positive.

 

Although we are encouraged by its recent performance of WDC, we are a bit concerned about the intense competition that the company faces in the hard disk manufacturing space and within its distribution channel. Customer concentration is yet another risk.

 

We have a Neutral rating on WDC shares.