Company watchers will be tuned in to next week’s conference call with Western Digital Corp. executives, as plenty of questions remain unanswered concerning its pending buy of STEC Inc. in Santa Ana.
The July 24 call with analysts should address some integration concerns and could provide a glimpse into the company’s product road map.
Western Digital put the solid-state drive maker under the banner of its San Jose-based subsidiary, Hitachi Global Storage Technologies Ltd.
Some industry watchers aren’t so sure about STEC’s return on investment.
“While the acquisition should fit in nicely to HGST’s existing SSD line, we believe this is a relatively risky play,” RBC Capital Markets analyst Amit Daryanani wrote in a note to investors.
He said investors will zero in on returning STEC to profitability; potential synergies; changes in management; and new products and pricing strategies.
Western Digital and Hitachi Global have said that Mark Moshayedi, interim chief executive of STEC, and former Chief Executive and Chairman Manouch Moshayedi will serve as consultants during the transition to Hitachi Global but have “no ongoing role with the company” once the deal is done.
Hitachi Global Chief Technology Officer Steven Campbell is overseeing the integration.
STEC makes solid-state drives, which use chips instead of spinning disks to store data.
The market is still emerging, but its growth prospects have prompted some 500 companies around the world to enter the fray since its inception five years ago.
The STEC buy is seen as complementing Western Digital’s leadership position in the consumer storage market, with its lines of hard disk drives that go into computers, external storage devices, corporate networks and consumer electronics.
Western Digital is the second-largest publicly traded company in Orange County by revenue, with about $12.6 billion in annual sales, and is the world’s largest disk drive maker in units sold and revenue.
Some investors are questioning the company’s accelerated entry into what is known as the Peripheral Component Interconnect Express (PCIe) market, considering Hitachi Global has a building block for flash-based storage applications for enterprise and cloud customers.
“We are somewhat surprised by the STEC purchase,” Mark Moskowitz, an analyst in the San Francisco office of JPMorgan Chase & Co., wrote in an investor note. “This market is more competitive given the participation of Fusion-io, EMC and IBM.”
The deal signals that Western Digital was more confident in quickly expanding product offerings with the newer technology than taking the time for development on its own, Moskowitz wrote.
The buy brings Western Digital 55 issued patents and an additional 78 that are pending.
It bears watching if Western Digital can grow SSD market share with Hitachi Global and STEC under the fold. Its non-hard drive sales have been in the $500 million to $540 million range over the past year, accounting for less than 5% of its total revenue in that time.
STEC once had a big lead in what is referred to as enterprise-grade solid-state drives, or flash drives used in corporate data rooms.
Record sales in 2009 eclipsed $354.1 million, but the company’s reliance on a small group of original equipment makers gradually became its undoing as big competitors entered the fray and took market share.
Sales dropped 45.3% last year to $168.3 million, prompting STEC executives to initiate a direct sales program earlier this year in a bid to move beyond OEM customers.
“We will be interested in understanding how Western Digital anticipates its ownership of STEC to result in a re-engagement with what has been broken OEM relationships over the past year,” said Aaron Rakers, an analyst at St. Louis-based Stifel Financial Corp.
