Leading hard disk manufacturer Western Digital Corp. (WDC), recently entered into an agreement to purchase the magnetic media sputtering business, of a Singapore based company named Hoya Magnetics Singapore Pte. Ltd., which is a group company of Hoya Corporation. 

Western Digital will purchase the operation in an all cash deal of 22 billion Yen (or approximately $235.0 million). As per the terms of the agreement, Western Digital will be getting supply of glass substrate from Hoya, which is expected to provide it with the much needed components, for the 2.5 inch hard disk drive business. 

In the current acquisition of Hoya Magnetics Singapore Pte. Ltd., Western Digital will be acquiring Hoya’s Singapore-based operations, along with all its facilities, equipment, intellectual property and working capital, along with Hoya’s Japan-based research and development facility. This will not only give Western Digital access to Hoya’s technological resources, but will also give it access to the skilled manpower of the company. 

Western Digital has always been active on the M&A front. In the past few years, its acquisitions have added scale to its business operations and increased business volume. In 2007, the company acquired Komag, a developer and manufacturer of thin-film disk technologies for about $1.0 billion, which enabled the company to develop its own disk technologies. 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 penetratation into SiliconSystems’ existing markets. 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 delivered better-than-expected third quarter 2010 results, with EPS of $1.71, exceeding the Zacks Consensus Estimate of $1.55. The company is taking measures to increase its business in Asia and enhance its product portfolio. Western Digital is cash-rich. However, while we are encouraged by its recent performance, we are a bit concerned about the intense competition the company faces in the hard disk manufacturing space and within its distribution channel.
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