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Western Digital-Toshiba Form JV to Invest in K1 Facility

Zacks Equity Research

In a bid to expand presence in Japan, Western Digital WDC and Toshiba Memory Corporationannounced an agreement to invest in the “K1” manufacturing facility in Kitakami.

The latest facility will manufacture 3D flash memory toaddress the needs of new age smartphones, increasing demand for storage in data centers and autonomous cars. Notably, the K1 facility is likely to deliver an initial production output of 96-layer 3D flash memory starting 2020.

The latest move underscores the company’s strategies of continual expansion in NAND flash technology and increased focus on fulfilling flash supply needs by increasing volume, velocity, variety and value of data needs.

Western Digital Corporation Price and Consensus


Western Digital Corporation Price and Consensus

Western Digital Corporation price-consensus-chart | Western Digital Corporation Quote

Benefits of Investments

The requirement for efficient data storage is increasing on the back of accelerated use of AI related applications and multimedia sharing tools. Citing predictions by Gartner, around 80% of all smartphones will have on-device AI capabilities by 2022, consequently the need to process and store more data locally.

Over the past few years, both the companies have been bolstering investments to jointly develop 3D flash memoryfor ensuring better delivery to customers. According to Steve Milligan, CEO of Western Digital, “The agreement to jointly invest in the K1 facility marks the continuation of our highly successful collaboration with Toshiba Memory, which has fostered growth and innovation of NAND flash technology for two decades.”

Per Statista, the flash memory market is expected to be worth $27.6 billion globally in 2020.

IDC forecasts that by 2025, the global datasphere will grow to 163 zettabytes (that is a trillion gigabytes), which is 10 times the 16.1 zettabytes (ZB) of data generated in 2016. Due to the high performance and low latency features of flash storage, it has become the ideal storage technology to harness this data explosion.

Moreover, per Research and Markets projections, worldwide data center storage market will expand at a four-year compound annual growth rate (CAGR) of 15.01% during 2016-2020.

Notably, growing demand for storage across applications such as consumer electronics and enterprise storage sectors have significantly driven the NAND flash memory market, particularly 3D NAND memory. According to Allied Market Research, the market is anticipated to witness a CAGR of 33.7% to $39 billion over 2014-2022.

Consequently, the investment to develop this latest facility will be beneficial for Western Digital’s revenues.

To Conclude

We believe the new products rollout and innovation in memory technologies will strengthen the company’s product portfolio. We believe that momentum from the launch of the Western Digital product suite will help the company to emerge as a major player in the rapidly growing storage market, in turn lending greater stability to revenue stream.

However, uncertain macroeconomic environment, declining trend in PC shipments and softness in NAND flash pricing trends are damping the growth prospects of the company.

Ballooning debt levels have also been troubling Western Digital for quite some time now.  Western Digital also faces stiff competition from Seagate STX, Hitachi, Samsung and Intel INTC in the storage market which adds to the woes.

Zacks Rank & a Stock to Consider

Western Digital carries a Zacks Rank #5 (Strong Sell).

A better-ranked stock in the technology sector include Cadence Design Systems, Inc. CDNS, carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Cadence Design Systems is currently projected to 12%.

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