Western Digital shares soar as company spins off flash memory business


  • Western Digital Corp. Shares jumped more than 10% Monday morning before giving up gains after the computer hard drive maker announced it would spin off its flash memory business.
  • Western Digital's flash memory unit has struggled with oversupply in recent quarters, due to falling demand for memory chips after a pandemic surge.
  • The divestiture of Western Digital is the latest in a wave of corporate splits this year, with companies ranging from Intel and BlackBerry to Kellogg and Johnson & Johnson loses part of its activities.

Western Digital Corp. shares. (WDC) jumped more than 10% in early trading Monday before giving up some gains after the computer hard drive maker announced it would spin off its flash memory business.

The move comes amid falling demand for flash memory chips, which has led to oversupply in recent quarters. Last week, Western Digital abandoned long discussions about a merger with Kioxia, a Japanese memory drive maker, owned by a consortium led by Bain Capital and which is the former semiconductor unit of Toshiba.

Western Digital's decision to spin off its flash memory unit is a victory for activist investor Elliott Investment Management, which last year advised the company to make such a move.

Western Digital CEO David Goeckeler said the two business units are “well-positioned to capitalize on significant market dynamics in the data storage sector,” and, as separate companies, “will have the strategic direction and the resources needed to seize opportunities in their respective markets.”

The decision to separate the two units as well “This will unlock significant value for Western Digital shareholders,” he added. » said Goeckeler.

The flash memory unit of the The company has faced oversupply in recent quarters, due to a decline in demand for memory chips. Demand initially increased during pandemic lockdowns, as people bought more computers for personal use at home, but declined as offices reopened and leisure time diminished.

Income for the fiscal year #39;business first The 2024 quarter, reported Monday, fell 26% from last year, with sales of hard disk drives (HDDs) falling 40%, while those of flash drives fell in the high single-digit range.

Western Digital first entered the USB drive business in 2016, acquiring SanDisk, a California-based flash memory card maker, for $19 billion. The fallout from the flash memory unit will enable this transaction to take place efficiently.

Western Digital shares were up nearly 8% around 3:30 p.m. ET, after jumping more than 10% early in the session. They have increased by almost a third so far this year.

Wedbush Securities analysts have awarded an 'outperform' rating of WDC and are considering a price target of $60 per share. That represents a premium of nearly 50% over the stock price of $41 as of Monday afternoon.

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The latest in a wave of spinoffs

Western Digital's divestiture is the latest in a wave of corporate spinoffs this year, with companies ranging from Intel (INTC) and BlackBerry (BB) to Kellogg and Johnson & Johnson (JNJ) is spinning off part of its business.

Rival chipmaker Intel announced earlier this month plans to operate its programmable chip unit as a separate company starting in January, with plans to launch an initial public offering (IPO) of the unit in the next two to three years.

BlackBerry announced earlier this month that& #39;it was going to spin off its Internet of Things (IoT) business, which is expected to go public early next year. Also in October, Kellogg split into two companies, Kellanova (K) and WK Kellogg (KLG), separating its snacks division from its traditional cereals unit.

In one of the biggest spinoffs of 2023, Johnson & Johnson spun off Kenvue (KVUE), its consumer healthcare division that makes and sells popular brands like Aveeno, Band-Aid, Tylenol, Benadryl and Listerine, into a separate company.

Kenvue debuted as a public company in May, in an IPO priced at $22 per share, with Johnson & Johnson retains ownership of all but approximately 10% of the shares, but said at the time that he intended to divest his majority stake in 2023, subject to market conditions.

Companies split part of their business when they believe a unit could be more profitable as an independent company. The growth strategy of one unit may be incompatible with the rest of the company and prove to be a drag on the rest of the company. As a separate business, the unit could also be run more efficiently as it receives more attention from new management.

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Source: investopedia.com

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