The leading flash memory storage solutions company, SanDisk Corporation (SNDK) recently declared its intention of acquiring California-based developer of enterprise solid state drives (SSD), Pliant Technology Inc., for $327.0 million in cash and certain equity-based incentives.
The acquisition will enable SanDisk to access Pliant’s technology and enterprise-level system expertise, which are expected to be combined with SanDisk’s high-quality, large-scale multi-level cell (MLC) memory production. SanDisk’s flash technology and flash management capability will complement Pliant’s strengths; thereby enhancing the company’s credibility and performance in the Enterprise SSD market.
The deal has been approved by the board of directors of both the companies and is expected to be completed in the second quarter, subject to certain regulatory approvals and conditions.
Though the acquisition is expected to reduce earnings by 2 to 3 percentage points in fiscal 2011, it has the potential to boost the results in fiscal 2012.
After the news of the acquisition broke, shares of SanDisk moved up by $3.09 or 7 percentage points to $49.58, during the Monday afternoon trading session.
The rationale for the acquisition is found in the industry research data provided by the technology research firm Gartner, which stated that the Enterprise SSD market is poised for considerable growth, with revenue projected to reach $4.2 billion in 2015, up from $994 million in 2010. SanDisk, being a leading player in the SSD segment, is expected to drive higher market share, which will in turn enhance its business.
The company witnessed favorable pricing coupled with higher gross margin expansion during the first quarter. SanDisk is also sitting on cash pile, which lends operational flexibility in our view.
Moreover, we believe that the demand for flash memory will continue, as it provides the most viable data storage on smartphone, tablets and other portable devices. Moreover, SanDisk’s solid state drive design wins into Intel Corp.’s (INTC) Sandy Bridge PC platforms are also encouraging.
However, a high debt balance, customer concentration risk and European weakness are headwinds for the company. Despite these headwinds, we are optimistic regarding the long-term growth story of SanDisk.
Sandisk holds a Zacks #3 Rank, implying a short-term Hold rating.
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