Last Dip for Western Digital?
Sometimes it feels as if the nuclear standoff between the U.S. and North Korea is only the second most bitter east-west conflict, after the feud between Toshiba (OTC: TOSBF) and Western Digital (NSDQ: WDC).
At stake is the flash memory joint venture operated by Toshiba but co-funded on equal terms by Western Digital, which got the stake last year when it purchased SanDisk. The joint venture’s cutting-edge chips are crucial to Western’s push deeper into the enterprise data storage market.
Toshiba’s announcement Wednesday that it’s agreed to sell its flash division to a rival bidding consortium of Bain Capital, Apple (NSDQ: AAPL), Dell (NYSE: DVMT) and SK Hynix (OTC: HXSCL) doesn’t deprive Western of its stake in the joint venture. But it does give rivals a guaranteed share of scarce flash supply.
Toshiba’s plans to build its next plant without partnering with Western Digital is a further threat to the latter. Western Digital has filed arbitration claims over those plans and the deal with the Bain group, on top of its earlier complaint that it holds a right of first refusal on Toshiba’s memory chips business.
WDC shares fell only 4% on the news because those arbitration claims could well succeed and scuttle the announced sale. And of course Western will in any case retain its 50% interest in the unit.
I view the action as another opportunity to pick up one off the fundamentally strongest tech players on the cheap. The current 2.3% dividend yield represents less than a fifth of recent free cash flow. And that gives Western lots of firepower and options no matter who replaces Toshiba as its partner.