Western Digital Corp. is adding more muscle to its flash memory business with an agreement to acquire solid state storage vendor Stec Inc. as demand for the device ramp up sharply from the mobile communications equipment market. Western Digital, the world’s leading vendor of hard disk drives, announced today in a statement today that it will pay $340 million in cash for Santa Clara, Calif.-based Stec.
The transaction continues a spate of acquisitions and other moves in the market as vendors and their OEM customers jostle for the opportunity to earn a bigger share of fast-growing segments of the electronics industry that are becoming bigger users of flash drives and other hybrid storage devices. Solid state drives (SSD) are being adopted by PC OEMs and enterprise computing manufacturers following significant improvements in the technology.
Stec has focused on the enterprise market and has racked up some successes in what the company describes as “large-scale enterprise environments”. It has also seen sharp declines in sales and racked up losses as bigger rivals encroached on its turf. The company’s sales tumbled in 2012 to $168.3 million, down more than 45 percent, from $308.1 million in 2011. The company recorded net loss of $103.22 million, or $2.22 per share, in 2012 compared with net income of $25.1 million, or 50 cents per share in the prior year.
The poor sales performance has hurt Stec in the recent year with its stock price dropping to a 12-month low of $3.31. The shares closed at $3.59 on Friday, June 21 but rose sharply, following the announcement of the Western Digital deal, to an intraday high of $6.71 on Monday. The shares were trading as high as $8.39 in the last year and were well above $20 in 2010 before they began sliding as pressures mounted from competitors.
Western Digital’s acquisition offer will not only put a bottom on the stock price slide but also drive the exploitation of the technology behind Stec’s offerings. San Jose, Calif.-based Western Digital gains some solid engineering skills and intellectual property with the acquisition and is expected to fold Stec into its HGST division.
“Solid state storage in the enterprise will play an increasingly strategic role in the future of Western Digital,” said Steve Milligan, president and CEO, Western Digital, in the statement. “This acquisition is one more building block in our strategy to capitalize on the dramatic changes within the storage industry by investing in SSDs and other high-growth storage products.”