You might say talk of a Western Digital Corp. takeover is heating up.
Bear Stearns & Co. analyst Andrew Neff came out with a research note earlier this month that wondered if the Lake Forest-based company is “the next logical acquisition candidate in (the) hard disk drive sector.”
That follows an article at TheStreet.com in early April that speculated South Korea’s Samsung Electronics Co. could be in the hunt for Western Digital.
The article pointed out that some analysts didn’t think it was much of a likelihood,and that some hedge funds could have an interest in fueling the speculation.
The speculation was enough to lift Western Digital shares,though it’s difficult to say exactly how much. On the day Neff’s note came out, Western Digital’s stock rose about 14%, to $21.70, giving it a market value of about $4.6 billion.
All the speculation is just that. Western Digital has been the subject of takeover rumors for years.
Neff didn’t say an acquisition was imminent. But he laid out the reasons why an acquisition would make sense.
He also put a price tag on a potential deal: $32 to $37 per share, which translates to $6.8 billion to $7.9 billion.
Neff made his assessment based on the acquisition that’s been driving the takeover speculation: Scotts Valley-based Seagate Technology LLC’s $1.9 billion buy of Maxtor Corp. of Milpitas.
Seagate, which closed its Maxtor buy last week, now has more than half the market for some drives.
Neff said the deal could put Western Digital in a tough spot against big players, such as Hitachi Ltd., Fujitsu Ltd., Toshiba Corp. and Samsung, not to mention Seagate.
“(Western Digital),although it is consistently profitable,now faces an industry with larger players with broader resources,” Neff wrote. “While WDC could remain independent, to remain competitive in the long term, it may need to join one of the other leading vendors.”
He pointed out Western Digital’s 2005 revenue of $4 billion was “considerably smaller” than Seagate/Maxtor at $12.4 billion.
Hitachi’s 2005 sales were $79 billion, with Samsung at $56 billion, Toshiba at $52 million and Fujitsu at $42.9 billion.
The Asian players are different from Seagate in that they also sell everything from fuel cells to microwaves. But that kind of heft can’t hurt, especially in the disk drive industry, which is being commoditized.
Neff said acquiring Western Digital would be especially helpful for Asian disk drive makers. They would get a key player to take on Seagate, with Western Digital’s solid foothold in many sectors, including 55% of the desktop computer market.
“We see Western Digital as the next logical acquisition candidate given its position in the hard disk drive industry as the only standalone company with an attractive product portfolio,” he said.
The disk drive industry traditionally has gone through consolidation when the market was weak and demand was soft.
But Neff said Seagate showed an acquisition can happen during good times. Seagate said that about half of Maxtor’s 12,000 workers would be cut in the wake of the deal’s closing.
Western Digital’s shares got a boost last year when Seagate first said it planned to buy Maxtor. The thinking is that Western Digital stands to pick up business from computer maker customers of Seagate and Maxtor who don’t want to concentrate their buying from one company.
Western Digital is known in the industry for its operational prowess.
It doesn’t mind not being the first to market with the latest hard drive, but if it sees demand growing for a product, it ramps up quickly to tap demand. It did that with laptop drives a few years ago.
Gearing Up
Netgear Inc. is making progress against two big Orange County-based home and small-business networking companies.
Netgear, which is based in Santa Clara, is taking some market share from Irvine-based Cisco-Linksys LLC, part of Cisco Systems Inc., and Taiwan’s D-Link Corp., which has its U.S.-based arm in Fountain Valley.
That observation is from Ryan Hutchinson, an analyst with W.R. Hambrecht & Co. in San Francisco.
Hutchinson said Netgear continued to “take share” from Linksys and D-Link, along with Compton-based Belkin Corp., in the home-networking market during the past few quarters. The analyst didn’t give specifics.
Hutchinson credited Netgear’s improving relationship with Best Buy Inc. and expansion into other retail outlets.
It’s no secret it’s a tough market.
Victor and Janie Tsao,the founders of Linksys, recently said they were stepping down from running the networking gear company they sold to Cisco Systems three years ago.
J. Michael Pocock, who had headed up Polaroid Corp.’s push into digital media, is taking over for the Tsaos.
Janie Tsao had said she wanted to hand the company’s day-to-day leadership duties to someone who could take the company to the “next level.”
The companies are trying to position themselves for the future “digital home,” which will connect most electronic devices, including televisions, stereos and computers.
Cherokee Powers Up
Tustin-based Cherokee International Corp. showed some nice growth in the quarter ended March 31.
Cherokee, a maker of power supply gear, said net income grew 32% to $827,000 in the quarter, versus a year ago. Revenue was $36 million during the March quarter, up 13% from the year-ago period. The company’s revenue had fallen 11% to $33 million during the December quarter compared to a year earlier.
Cherokee’s power gear goes in computers, storage devices and wireless gear makers, among others. It said sales to telecom gear makers helped spur the gains in the quarter.
