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Memory provider Western Digital is spinning off its flash business into a new company that’ll adopt its own name.
The change will form two independent companies. Western Digital will focus on selling the company’s hard drives and retain the brand name. The spin-off will specialize in flash memory sales, including SanDisk family products.
The restructuring is all about maximizing shareholder value, Western Digital CEO David Goeckeler said in an earnings call on Monday. “This transaction will allow each franchise to execute on its product and innovation roadmap, and capitalize on the unique growth opportunities in their respective end markets,” he said.
“Each company will benefit from streamlined management focus, operational flexibility, and the ability to set its own distinct capital allocations and shareholder return policies,” he added.
(Credit: Western Digital)Western Digital is making the change after going through a strategic review, which was launched a year ago after an activist investment firm, Elliot Investment Management, argued that the company was underperforming financially.
In a letter to Western Digital, Elliot Investment cited the company’s 2016 acquisition of SanDisk, the well-known flash memory provider. Western Digital paid $19 billion for the company to help it become a bigger player in the memory market. But according to Elliot Investment, “Western Digital has underperformed—operationally, financially and strategically—as a direct result of the challenges of operating two vastly different businesses as part of the same company.”
In response, Western Digital said it looked at a range of “alternatives.” According to Nikkei Asia, the company was in talks to merge with Japanese memory vendor Kioxia, but the negotiations fell through, which likely forced Western Digital to resort to the spin-off.
The decision is striking since it essentially unwinds the SanDisk acquisition from Western Digital. But in the announcement, Goeckeler said, “we are now emerging from a historic cyclical downturn in storage” when sales for PCs have taken a dive following the boom days during the COVID-19 pandemic.
Western Digital expects to serve a market valued at $25 billion for hard drives. Meanwhile, the spin-off business is aiming to serve an even larger market valued at $89 billion, citing the rise of VR, generative AI, and video game console sales.
(Credit: Western Digital )Western Digital is aiming to complete the separation during next year’s second half, pending approval from the company's board. More information on the spin-off business will be provided during an investors day next year.