Rawpixel.com - stock.adobe.com
Western Digital will become two companies, one focused on hard drives and the other on flash memory.
During the company's first-quarter 2024 earnings call Monday, WD executives informed shareholders of the decision, stating that the split would come in the second half of 2024. The Western Digital name will stay with the HDD business, and the flash-focused business will be renamed.
The news came after months of speculation that WD and Kioxia were in discussions about merging their flash businesses, given a declining flash media market and their established relationship. But during the earnings call, David Goeckeler, CEO of Western Digital, said spinning off the flash business was part of a now-completed strategic review and is not related to factors such as a possible merger with Kioxia.
"The Western Digital management team and board determined that spinning off its flash business is the best executable alternative at this time to fully realize value for shareholders," Goeckeler said during the earnings call.
The split will allow each segment to lay out its own roadmap and capital for executing on that roadmap independently, he said.
Splitting the business
Goeckeler became CEO of WD in March 2020 after serving as executive vice president and general manager of Cisco's networking and security group. Goeckeler said during the earnings call that the buildup of two distinct business units -- HDD and SSD -- began early in his tenure at WD, as did a focus on debt reduction.
Last year, activist investor Elliott Investment Management disclosed a nearly $1 billion stake in WD and urged the company to consider strategic alternatives, including separating the two business units. In January, WD announced that it received $900 million from private equity firm Apollo Global Management and Elliott through a convertible preferred stock deal.
David GoeckelerCEO, Western Digital
"Each business is now in a strong operational position to succeed on its own," Goeckeler said. "And the actions we are announcing today will further enable each company to drive long-term success in the years to come."
But this year also brought months of speculation that WD's flash business and Kioxia might merge. The two companies have had a joint venture on NAND development for 23 years in the co-creation of BiCS NAND, and while the merger speculation is years old, outlets such as Bloomberg reported that the two were actively discussing it, even pointing to potential funding sources and ownership structure.
Last week during an earnings call, SK Hynix, a large South Korean NAND manufacturer and investor in Kioxia, said it wouldn't support such a merger "in light of the overall impact on the value of the company's investment in Kioxia." After that, merger speculation between WD and Kioxia fizzled.
Different companies for different tech
Analysts believe that breaking up WD makes sense for the company and likely won't affect customers.
Steve McDowell, an analyst and founding partner at NAND Research, said part of the reason for the split comes from pressure from Elliott Investment Management. But it also makes sense on the technical level, he said, noting that the two business units had little in common.
"The markets overlap, but they are still pretty different," he said.
Hard drives have distinct manufacturing, go-to-market and production cycles, according to McDowell. They are also aimed at public cloud companies, while SSDs are more focused on client devices such as mobile phones and PC manufacturers.
"I don't expect [that customers are] going to be impacted by this at all," he said, adding that the impact will be more on employees and investors.
Jim Handy, general director and semiconductor analyst at Objective Analysis, said the split will enable WD to focus on its HDDs, an area the company entered into in the 1980s. WD's entry into flash storage came much later, when it bought SanDisk in 2015 for $19 billion.
Now, splitting the company along WD's flash and HDD business lines will likely have minimal effect on customer experience beyond the rebranding of some of its products, Handy said.
"As far as continuity of supply or any kind of service that [customers] get, I wouldn't expect to see any real changes other than perhaps a change in the salesperson who's calling on the account," he said.
Market, research impact
But the future of WD as well as its spun-out flash business is still a question mark. The benefits WD saw from the SanDisk acquisition could dissipate. Together, the combined SSD and HDD R&D teams could work to approach similar problems from different perspectives, Handy said. He pointed to the rollout of OptiNAND as an example.
"OptiNAND takes NAND and uses it inside a hard drive to make the hard drive considerably faster," Handy said.
Selling both HDDs and SSDs also provided an advantage over close HDD competitor Seagate, according to Dave Raffo, an analyst at Futurum Group. HDDs are a shrinking market, while SSDs are delivering new growth. However, selling only HDDs could be beneficial for WD, he said.
"It could push WD to put more development and sales focus on HDDs because it doesn't have flash to spark growth," Raffo said.
Plus, the SSD-HDD engineering and development teams remained distinct, according to McDowell. While sales and marketing were shared resources and will have to be staffed up for the two companies, that likely won't be the case on the engineering and development side.
"They were already pretty siloed," he said.
Updated on 10/31/2023.
Adam Armstrong is a TechTarget Editorial news writer covering file and block storage hardware and private clouds. He previously worked at StorageReview.com.