- Shares of Western Digital Corp. rose more than 10 percent before giving earnings early Monday after the computer hard drive maker said it would exit its flash memory business.
- Western Digital’s flash memory division has struggled with a supply glut in recent quarters, as demand for memory chips has been low since the pandemic.
- Western Digital Distillery is the latest in a wave of corporate attrition this year, with companies ranging from Intel and BlackBerry to Kellogg and Johnson & Johnson shedding parts of their businesses.
Shares of Western Digital Corp. ( WDC ) jumped more than 10% in early trading Monday after the computer hard drive maker said it would exit its flash memory business.
The decision is due to low demand for flash memory chips, which has led to supply shortages in recent quarters. Last week, Western Digital abandoned lengthy discussions about a merger with Japanese memory drive maker Kyoxia, which is owned by a consortium led by Bain Capital and is Toshiba’s former semiconductor unit.
Western Digital’s decision to divest its flash memory division is a victory for activist investor Elliott Investment Management, which last year advised the company against such a move.
According to Western Digital CEO David Goeckeler, the two business units are “well-positioned for significant market volatility in the data storage industry” and as separate companies “will have the strategic focus and resources to pursue opportunities in their respective markets.”
The decision to separate the two divisions “will unlock significant value for Western Digital shareholders,” Goeckeler said.
The company’s flash memory division has struggled with a supply glut in recent quarters, due to declining demand for memory chips. Demand initially picked up as people bought more computers for personal use at home, offices reopened and vacations decreased.
The company’s fiscal first quarter 2024 revenue was down 26% from a year earlier, with sales of hard disk drives (HDD) falling 40% while flash drives fell in the high single digits.
Western Digital first entered the flash drive business in 2011. In 2016, it bought California-based SanDisk, a maker of flash memory cards, for $19 billion. Rotating the flash memory unit effectively eliminates that transaction.
After rising more than 10% early in the session, shares of Western Digital were up 8% by 3:30 p.m. They have increased by about a third so far this year.
Analysts at Wedbush Securities have given WDC an “outperform” rating, and are expecting a price target of $60 per share. That’s a 50% premium to the $41 share price as of Monday afternoon.
The latest in a wave of spinoffs
Western Digital Distillery is the latest in a wave of spinoffs among corporations this year, with companies ranging from Intel ( INTC ) and BlackBerry ( BB ) to Kellogg and Johnson & Johnson ( JNJ ) spinning off parts of their businesses.
Rival chipmaker Intel announced earlier this month that it plans to spin off its programmable chip unit as a separate company starting in January, and plans to launch the unit’s initial public offering (IPO) within the next two to three years.
BlackBerry said earlier this month that it will discontinue its Internet of Things (IoT) business, which is expected to go public early next year. Also in October, Kellogg separated its snack division from its traditional cereal division into two companies: Kelanova ( K ) and WK Kellogg ( KLG ).
In the year In one of the biggest spinoffs seen in 2023, Johnson & Johnson ( KVUE ) split from its consumer healthcare division into a separate company that makes and sells popular brands like Aveeno, Band-Aid, Tylenol, Benadryl, and Listerine.
Kenvu launched as a public company in May, with an IPO at $22 per share.Johnson & Johnson said it owned all but roughly 10% of the stock, but at the time said it planned to divest the majority stake in 2023. to market conditions.
Companies spin off parts of their business when they believe that a division can be more profitable as an independent company. A division’s growth strategy may be incompatible with the rest of the organization, and may be a drag on the rest of the business. As a separate company, the division will receive more attention from new management, and will be able to manage it more effectively.