Why Western Digital, Micron Technology, and Seagate Technology have grown today

What happened

Technological equipment actions Western digital (NASDAQ: WDC) ended Wednesday’s trade action up 7.8%, followed far behind by rival computer memory makers Micronic Technology (NASDAQ: MU) (up almost 3%) and Seagate Technology Holdings (NASDAQ: STX) (up less than 1%). The biggest of those three jumps was sparked by rumors that Japan’s Kioxia is considering a merger with Western Digital.

So what

The big move materialized late in an otherwise sleepy trading session, when The Wall Street Journal reported that privately held Kioxia had been in talks with Western Digital for months to strike a deal worth more than $ 20 billion in shares to create an even stronger competitor in data storage.

Be careful, however, not to draw definitive conclusions from the report. The financial newspaper’s website cited only “people familiar with the matter” without naming names. And, neither Kioxia nor Western Digital had made an official statement on the matter on Wednesday night. Such a pairing would also require the consent of Japanese regulators, if the whispers are indeed true.

Yet the premise itself contains water. Kioxia – formerly Toshiba Memory, and owned by Bain Capital – was planning to go public in the middle of this year, apparently aiming to complete its initial public offering scheduled by September. A deal with Western Digital would likely be made around the same time, and with less paperwork and the avoidance of the usual post-IPO volatility.

The rumor is also credible as Micron Technology was also considering partnering with Kioxia at one point.

Such partnerships between technology companies can reduce relative costs by increasing scale and scope, which is now a special priority for the memory manufacturing industry. The prices of SSDs and more traditional hard drives have changed dramatically in recent years. Data from the PC hardware pricing website Part Picker, however, indicates that hard drive prices have remained surprisingly stable since the start of last year, when the COVID-19 pandemic disrupted supply chains throughout. by stimulating increased demand for more employees suddenly working from home.

But these prices are stabilizing at relatively low levels per gigabyte. Technology market research firm IDC predicts that global SSD revenue will grow at an annualized rate of 9.2% through 2025, although the total amount of storage capacity shipped will grow at an annual rate of 33%. . The growth disparity reflects what IDC describes as “continued price erosion in the long-term price outlook for SSDs.”

Now what

Investors celebrated the prospect of the supposed twinning with a massive takeover of Western Digital. And, from a certain point of view, the purchase is understandable. This is a business that needs to evolve in order to grow or even just maintain its profit margin, and the combination with Kioxia would make that accomplishment. As the revenue and profitability of the private company is not known, however, there is no way of knowing whether the suggested value of $ 20 billion (or more) is a reasonable price – if an offer is on the table at all.

As for Seagate Technology and Micron Technology, their more modest jumps Wednesday make even less sense. While the suggested merger involves other potential deals, the most plausible deal Micron was apparently interested in making is even less likely now than it was just a few months ago. Seagate wasn’t much of a merger and acquisition candidate initially either, and even less so now, as there are no other potential industry matches to be made. that would be significant enough to be of importance.

The bottom line for investors is that there is nothing in the rumors on Wednesday that should prompt a purchase of any of these stocks after their gains. This even includes Western Digital, which arguably has the most to gain if The Wall Street JournalThe suggestion ends up being validated. Much more fiscal clarity regarding the alleged deal is needed to justify the purchase of already expensive stocks, especially given the competitive IT storage environment which is heavily subject to price wars due to the nature of the business similar to that of commodities.