My estimate assumes WDC's SSD sales rise to an annual rate of $1.25 B between 6/16 and 6/17. With the other estimates, Flash as 80% of SSD BOM and 40% flash margins, the internal supply of NAND flash would save WDC about $256 M during the aforementioned period.
Other savings could come from cost cuts, etc.
"The majority of the Transaction synergies are expected to come from vertical integration, allowing Western Digital to purchase NAND at a better price for its enterprise solid state drive business (7% of Western Digital 2015 revenues = $938m revenue)" So where do these huge cost synergies arise from?
Assume WDC's SSD sales for the period 6/16 through 6/17 are $1.25 B.
SSD margins are around 35%, so WDC's COGS for these SSDs are $0.81 B. About 80% of the COGS are for the flash memory, so that is $640 M in flash memory purchases. Flash gross margins are 40%, so by having an internal supply you save $256 M, or about half the promised synergies.
As SSD sales increase this savings increases as long as SNDK can manufacture NAND Flash cost effectively so that WDC saves money by having an internal supply of NAND flash
The key point that many seem to wrongfully focus on is the declining sales and profits of SNDK and using that to value SNDK to see if the deal makes sense.
This doesn't matter to WDC. WDC IS NOT GOING TO BE SELLING NAND FLASH.
What matters to WDC is SNDK's ability to cost effectively manufacture NAND Flash so that it saves money by having an internal supply.
The current risks here is that SNDK is behind INTC, Micron, and Samsung in the ramp of 3D NAND flash and the continuing decline in NAND flash prices.
Another point being missed by brain dead Analysts is how much share does WDC gain versus STX and others in the enterprise SSD market by having an internal supply of flash?
STX's performance enterprise drive shipments are about 40% of total enterprise drive shipments, or based on last quarter about 3 M drives, so that's 12 million drives/year. If WDC can capture 25% of these drives, that's 3 million units
Assume $175 ASPs and 40% gross margins for these enterprise drives and that adds another $210 M in annual gross profits from the deal.
That's just for performance enterprise SSDs, WDC could gain share in other SSD segments.
"They did see a modest uptick in Dec qtr suspensions, so the HDDs should meet expectations for Dec15 qtr"
According to HTCH's December shipments, December TAM should be flat at 119 M, but NIDEC had projected a December TAM of just 113 M. HTCH shipments are more influenced by product mix, as capacity/drive and the number of suspensions/drive increase drive TAM could actually decline while suspension shipments rise.
"This is not new news (weak PC compute) and a lot will depend upon how the other segments perform. WDC is not planning on a resurgence on the PC client compute segment"
but the Analysts are only modeling a 3% sequential decline in March quarter revenues, so to meet that with a 8-20% drop in unit shipments, the other segments must perform well.
HTCH guided to their suspension shipments dropping from 106 M units to just 85 to 95 M units this quarter, a 11% to 20% sequential decline. They tried to color that as a normal seasonal drop, but it is double the December/March quarter decline they guided to last year. The drop is also consistent with NIDEC's forecast of a 15% sequential decline.
According to the WDC/STX revenue estimates, the Analysts are expecting just a modest sequential drop, a couple percent in March quarter sales.
Could be another reason why the drive stocks are tanking.
Once again your selective report paints an incomplete and misleading picture.
Both Benchmark and Wells Fargo reported that December notebook PC shipments by the 4 major Taiwanese manufacturers increased more than expected during the December quarter, notebook PC shipments were up 5.8% sequentially. According to Benchmark, Western Digital's channel pricing was more stable than Seagate's during the quarter. The displacement of hard drives in notebook PCs accelerated during 2015.
What's bugging me is you trying to posture yourself as providing objective information to this board, when in fact you are as slanted as some of the crooked Analysts you are trying to defend.
Here is what you posted on RBC on:
"RBC commented on PC business and "sees trouble for HP and Western and Seagate." The thing is WD already predicted TAM going down in the low single digits every year. Nothing new. But traders need a crutch to get thru their day"
Once again you spin it as no big deal, real objective my little pumper.
Where were your posts on the three sells? Do you even know who made them?
What a phony!
"What the heck is your beef. If you are making the case that the analysts are not always right and that they have agendas not in the interests of the average shareholder, not a single longs on this board will disagree with you"
My problem is with your selectivity of what Analyst comments you choose to propagate on this board. Did you feature the comments of the three analysts who turned bearish last year? I don't give a damn whether it was STX or WDC, it looks like the Street lumps them both together.
My beef is that you shouldn't selectively pump up posters based on the advice of these bullish Analysts who missed a 45% drop in the share prices of both STX and WDC because of their agendas to placate management in order to derive favors, while you ignored the few analysts who told people to sell.
If you want to be the conduit of Analyst "wisdom" don't just play the cheerleader, present both sides.
Do you finally get it?
Here is a post I made in October, 2015 rebutting a basher:
"give it up
if not for WDC being the better company to invest in, the Chinese would not have bought shares for $92.50
Think about it DUMB#$%$"
1. I have been posting on these drive boards far longer than you and most others.
2. I like WDC, especially at this price and I always have thought highly of it
3. Through the years, I have spent more time bashing the bashers on this and the STX board than most other posters
However, you must have just fell off the turnip truck if you believe most of the Analysts following the drive stocks don't have hidden agendas behind their viewpoints.
If you go to the thread "Pac Crest Still Beiieves" you will see the second post I made to that thread 4 hours ago has be suppressed.
It appears somebody doesn't like it when I point out that certain Analysts have been touting the drive stocks in order to curry favor with the drive firms so that they can set up meetings between drive company management and the clients of these Analysts or attend the investor conferences or dinners sponsored by the Analysts' firms.
I don't blame the Analysts, most mutual funds no longer pay for objective research or insights about the industry, just access to management. Maybe that explains why most mutual funds under performed again in 2015?
Sadly it's all about spin and control, objective equity research has died.
"Did you want to hear "sky is falling!"
I don't expect Needham to call every 10% move in a stock, but both STX & WDC fell precipitously during 2015.
STX has missed the last two quarters and its earnings are down significantly since 2013.
An objective Analyst without a banking agenda would have said more, instead of constantly cheerleading for the group.
Is this really news to get excited about?
Needham is a hopeless pumper of the drive stocks and on numerous occasions during the past 15 years has watched STX and WDC crash while maintaining buys on the stocks so to cozy up to both firms for banking business.
At least, Morgan Stanley and a few others had the cajoles to drop STX to sell.
B of A and Benchmark's estimates for WDC/SNDK are only 16 cents apart.
I don't know if that is comforting or worrisome?