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Western Digital Starts New Era As SanDisk Acquisition Completed

Western Digital ( WDC ) completed its $16 billion acquisition of SanDisk, creating a formidable competitor in both disk drives and flash-chip storage. SanDisk is a leading provider of chips used for data storage in a wide variety of devices, including smartphones, tablets and PCs. The deal will help SanDisk, which has a strong retail business, move up the ladder to make bigger sales to businesses and other enterprise customers, the market where Western Digital is strongest. Western Digital gets the ability to offer chip-based storage in areas where its disk drive technology is losing ground. Western Digital didn’t provide updated guidance with its announcement of the deal’s closure. “This is disappointing, as the company indicated on its earnings call, perhaps unintentionally, that it planned to provide updated June guidance when the deal closed,” Pacific Crest Securities analyst Weston Twigg wrote in a research note. Western Digital did say that it would provide guidance in the “near term.” Twigg said Western Digital should remain well positioned in its core hard disk drive business, though disk drive revenue will decline over the next five years as non-volatile memory and software-optimized storage products gain. “Western Digital’s acquisition of SanDisk should help position it for these shifts,” Twigg wrote. Western Digital and SanDisk had combined revenue of about $20 billion in 2015. Western Digital is the largest provider of disk drives, ahead of Seagate Technology ( STX ). “This transformational combination creates a media-agnostic leader in storage technology with a robust portfolio of products and solutions that will address a wide range of applications in almost all of the world’s computing and mobile devices,” Western Digital CEO Steve Milligan said in Friday’s  press release  announcing the acquisition had closed. Sanjay Mehrotra, co-founder and CEO of SanDisk, will serve as a member of the Western Digital board of directors. Western Digital stock was down 2.5%, near 35, in late-afternoon trading in the stock market today , at a more than three-year low. Seagate stock was up 1.5%, near 19, after touching a four-year low on Thursday.

PC Devastation Fuels Intel Jobs Slash, Hard-Disk Drive Crash

The sharp drop in PC sales that is the main reason Intel ( INTC ) will slash 12,000 jobs is also why the disk drive industry continues to get slammed. The two largest disk drive makers, Western Digital ( WDC ) and Seagate Technology ( STX ), for several years have tried to deftly maneuver through the dramatic drop in PC sales. Global PC shipments fell 9.6% in the first quarter, year over year, to 64.8 million units, according to research firm Gartner. It was the sixth consecutive quarter of declines and the first time since 2007 that quarterly shipments fell below 65 million units. Chips and disk drives have been two central elements in every PC since personal computers emerged about 35 years ago. Intel has moved to lessen its reliance on PCs by getting more chips placed in mobile devices, data centers and elsewhere. “We are evolving from a PC company to a company that powers the cloud and billions of smart connected and computing devices,” said Intel CEO Brian Krzanich, when the company reported fourth quarter earnings on Tuesday. Besides the PC drop, Seagate and Western Digital have been hit hard by the emergence of tablets and smartphones, which don’t contain disk drives at all. Seagate’s year-over-year revenue has decelerated for 10 of the last 12 quarters. The trend is similar at Western Digital. That is expected to continue when both companies report quarterly earnings next week. Weston Twigg, an analyst at Pacific Crest Securities, expects disk drive revenue to decline about 8% annually through 2020, he wrote in a research report Tuesday. Both companies have sought to battle through the onslaught by diversifying into other areas, mainly by investing in solid-state memory chips and the development of all-chip storage systems, called solid state drives. Twigg expects solid-state drives will represent about half of data storage drives by 2020. Western Digital is making a huge play in the solid-state storage market with its $19 billion acquisition of SanDisk ( SNKD ), a leading provider of flash-memory chips used in smartphones and tablets. The deal positions Western Digital as having one of the most complete lines of storage among all providers. The deal, though, is a big risk for two reasons — Western Digital is taking on lots of debt, and the flash-memory market is highly competitive with the potential for substantial overcapacity, Twigg writes. This includes competition from Intel, Micron ( MU ) , Samsung and Toshiba. The good news is that Western Digital will be well-positioned if data-intensive applications like artificial intelligence, robotics, and the Internet of Things drive substantially higher demand for data storage, with hard-disk drives creating the backbone of these systems, he said. These same trends could bolster Seagate, though the company has been far more cautious about entering the chip-storage arena than Western Digital.

Intel Layoff Rumors Circle Amid PC Slump, Data Center Grapple

No. 1 chipmaker Intel ( INTC ) may cut thousands of jobs to buffer its bottom line amid continued PC malaise, according to a report from Oregon Live . The report came as a second analyst in a week cut his price target on Intel stock Sunday in reaction to industry reports of Q1 PC shipment declines and a “dreadful” January for Taiwanese ODMs. Intel is slated to announce its Q1 results late Tuesday. In afternoon trading on the stock market today , Intel stock was up a fraction, trading near 32. Shares dipped severely in January but began to recover by mid-February. As of Friday’s close, Intel stock was down 9% for the year. Summit Research analyst Srini Sundararajan cut his price target on Intel stock to 37 from 38 but reiterated a buy rating. He cited recent reports from industry trackers IDC and Gartner which projected 9.5% and 11.5% year-over-year declines in Q1 PC shipments, respectively. Taiwanese PC makers noted respective 15% and 30% declines in notebook/desktop and motherboard shipments in Q1, Sundararajan wrote in a research report. “We think there will be some effect on Intel in Q1 and Q2 possibly,” he wrote. Pre-announcements from Super Micro Computer ( SMCI ) and Seagate Technology ( STX ) — slated to report earnings April 28 and 29, respectively — show soft demand for the data center and hard disk drive businesses, he wrote. Hard disk drives declined 18% sequentially, Seagate said. That softness will affect Intel, which hangs 60% of its revenue on PC sales. And the data center struggles are particularly concerning. Intel is pushing big into the data center and cloud spaces to diversify from its weakening PC unit. Super Micro Computer guided to $530 million to $533 million in fiscal Q3 sales, well below the midpoint of earlier views for $530 million to $580 million. “Given that a tight correlation exists between Intel’s DCG (data center group) revenues and Super Micro Computer revenues, if we do not see any effect in Q1, we should expect some effect in Q2,” Sundararajan wrote. Intel will likely guide 2016 sales and capital expenditures down, he wrote. Three months ago, Intel modeled mid- to high-single-digit growth for 2016. Sundararajan cut his estimate to $57.1 billion in sales and $2.30 earnings per share, up 3% and down 1%. The consensus models $58.2 billion and $2.36 a share. So far, Intel hasn’t officially announced layoffs internally, according to the Oregon Live report that cited inside sources. The cutbacks could reduce employment in some units by double-digit percentages.