Western Digital To Acquire sTec, Beef Up HGST SSD, Flash Storage Business

Western Digital on Monday said its HGST business plans to acquire sTec, an early leader in the SSD market that has found its sales falling as of late.

The acquisition, at $6.85 per share, would bring sTec into the Western Digital family for about $340 million in cash, or $207 million if sTec's cash on hand were excluded. That represents a premium of about 90 percent over sTec's previous share prices.

Western Digital expects the acquisition to close late 2013, at which time sTec's engineering team and intellectual property will be used to augment HGST's existing solid-state storage business.

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With the acquisition, Western Digital will gain a wide range of technologies from sTec including flash and DRAM memory, SATA and PCIe SSDs, embedded SSDs, flash storage devices, and flash storage and caching software.

The sTec line is expected to complement the SATA and embedded SSD line Western Digital got with its 2011 acquisition of HGST, formerly known as Hitachi Global Storage Technologies.

Western Digital is also an investor in Skyera, a developer of flash storage appliances that use a combination of low-cost MLC-based flash technology and deduplication and compression technologies to bring flash storage costs closer to the cost of disk-based storage.

Spokespeople from HGST did not respond to requests for more information by publication time.

Todd Swank, senior director of product marketing at Equus Computer Systems, a Minneapolis-based system builder, said Western Digital's proposed acquisition of sTec is evidence of a continuing rationalization of the SSD business, and will likely be welcomed by the channel.

"There's such a bloodbath in the SSD space," Swank said. "Who are the masters? Companies like Samsung and Intel that have their own chip manufacturing. Western Digital and Seagate are seeing the importance of having the chip business."

Western Digital is reacting to the growing long-term strength of the SSD market, while sTec was competing in the brutal second-tier SSD market, Swank said.

"The second-tier SSD market is so competitive, it's silly to be selling someone else's stuff," he said. "Getting Western Digital behind sTec should result in big changes to that company. Consolidation in this space is good for all of us. It's hard to keep up with all the vendors. SSDs is one of the more active categories in the channel."

NEXT: sTec Struggling To Recover Its SSD Business

Aaron Rakers, an analyst with Stifel Nicolaus Equity Research, wrote in a Thursday research note that the acquisition is more of a technology-focused move because of sTec's 55 issued and 78 pending patents, and as part of a Western Digital strategy to strengthen its enterprise storage business.

sTec has been struggling to recover sales, which have been falling for a couple of years, with several new strategies.

Earlier this month, sTec introduced its first all-SSD storage appliance, the sTec s3000, based on its SSD technology and the Microsoft Windows Storage Server 2012 operating system.

sTec in April also signaled a shift to the channel and away from its near-total dependence on OEM business as a way to increase its business.

The moves come in the way of several disappointing financial quarters for the company.

sTec in May reported financial results for the first fiscal quarter 2013 to be $22.0 million, down 56.3 percent from the $50.4 million it reported for the first quarter of 2012. The company lost 54 cents per share in the first quarter of 2013, compared to 23 cents for the first quarter of 2012 on GAAP basis.

For all of 2012, sTec in February reported revenue of $168.3 million, a decrease of 45.4 percent from $308.1 million for full-year 2011. On a GAAP basis, the company reported a loss-per-share of $2.22 for all of 2012, compared to a full-year 2011 earnings per share loss of 50 cents.

PUBLISHED JUNE 24, 2013