Western Digital Corp (NASDAQ:WDC)’s plans to sell of a 15% in to a Chinese investor broke down, after the decision came under US national security review. Although the decision has stopped US technology falling into Chinese hands, it has also created troubles for WDC to acquire SanDisk Corp. Despite the budget setback, Western Digital is still pursuing the deal, but with a significantly smaller bid. Initially, WDC had offered $86.5 per share of the company, but after recent developments lowered the bid to $78.5. If the SanDisk acquisition does happen, it would provide WDC with resources to exercise cost cuts.
Problems with the SanDisk acquisition was not the only setback for WDC, as the stuck fell by 1.5%, after the announcement. Unisplendour’s recent attempt to acquire a stake in Western Digital is being seen as yet another attempt by Chinese manufacturers to gain access to US technology. Recently, Fairchild Semiconductor had also favored to go for a takeover proposal from On Semiconductor, despite having a higher offer from a Chinese investor, on similar grounds that the deal would come under US national security review.
Western Digital decided to take over SanDisk, following a growing concern of SanDisk’s SSD business taking away the market share of WDC’s HDD. Since SSDs are much faster, durable and efficient than HDDs, they could very well replace them in the near future. If the acquisition is successful, it would provide WDC with a unique advantage. Western Digital could then control the market for both HDDs and SSDs. Additionally, since SSDs have higher gross margins than HDDs, it would allow WDC to take an offensive marketing strategy.
It is expected that Western Digital would be able to save $1.1 billion in manufacturing costs, through the acquisition. However, what makes SanDisk so lucrative is the fact that it has cutting edge manufacturing technologies. Such technology is not available outside the US, as yet.
Western Digital Corp (NASDAQ:WDC) had a trade volume of 8.43 million and lost 7.22% of its share value, to close at $42.77, at the end of the February 23 trading session.