WDC Secures Hitachi Buyout Nod - Analyst Blog

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U.S.-based disk drive producer Western Digital Corporation ( WDC ) recently announced that the Fair Trade Commission of Japan has cleared Western Digital's application for acquiring Hitachi Ltd .'s ( HIT ) hard disk drive unit.

However, in order to acquire Hitachi's hard disk drive assets, WDC has to divest some of its existing assets. As per the recent agreement, the company has agreed to sell about 10.0% of its total units, which produces 3.5 inch hard disk drives for personal computers and consumer electronics.

This asset sale is biggest divestiture in Hitachi's history. The company is involved in manufacturing devices for nuclear power plants, trains and other infrastructure related products.

Moreover, for Western Digital, this buyout will help it attain the top spot of the hard drive market, brushing aside stiff competition from smaller hard drive and flash drive manufacturers, which supplies hard disk drives and related components to the likes of Apple Inc. ( AAPL ) and Nokia Corp ( NOK ).

This acquisition is expected to make Western Digital a more customer-focused storage company, with significant operational scale and a product suite that will enhance its competitive edge in the international market. On the other hand, some industry experts believe that the combined entity may lose some market share, owing to the competitive price offered by several smaller players for their hard disk drives.

Apart from its existing manufacturing facility, the company is planning to start manufacturing operations in regions like Thailand and Malaysia. Moreover, WDC expects the acquisition of Hitachi Global Storage Technologies to be completed during that period, subject to regulations imposed by the European Commission.

In light of the above mentioned facts, we believe that WDC is positive about reviving its operations in Thailand, which is already in demand among different PC manufacturers. Moreover, the company is trying to lower its interest expense by reducing its debt burden.

Although Western Digital is cash rich, its cash generation ability has been tempered somewhat by the stagnant pricing environment. Moreover, intense competition in the hard disk manufacturing space and higher component cost price are headwinds for the company. On the positive side, renewed interest in Thailand might help the company to improve its business fundamentals.

The company has a Zacks #2 Rank, implying a short-term Buy rating.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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