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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: joncon63 who wrote (59926)	2/23/2016 11:20:53 AM
From: Art Bechhoefer	3 Recommendations Recommended By alanrs david1951 joncon63 Read Replies (2) \| Respond to of 60323

I agree, the chances of receiving $86.50 are pretty much down to zero, though, as pointed out in other comments, a price near $78, part in cash and part in stock, seems more likely. I doubt that, despite the publicity given to one institutional holder of WDC, that there are enough votes to stop the acquisition altogether. Simply reducing the amount of stock that can be issued to pay for SNDK does not stop the merger. However, there is a distinct possibility that WDC will want to walk away from the deal, especially if stockholder reaction against the acquisition increases greatly. In that case, I would not mind at all if SNDK picked up $184 million if WDC cancels the deal. The question remains whether SNDK has enough proprietary technology and manufacturing know how to continue as an independent company in a market sector dominated by Samsung, still the world's largest producer of NAND flash memory. Given that 3D is now becoming the technology of choice for most applications, including enterprise servers, I think that SNDK can hold its own or actually gain on its competitors. The development of Xpoint by Intel raises an additional technology issue in that Intel apparently is trying to combine DRAM and solid state, non-volatile storage. This does not seem to me to be directly competitive with 3D NAND, at least initially. But I don't have enough technical background to be sure about this. My own investment strategy has been based on the assumption that the current price of SNDK is too low, given the high proportion of cash and marketable securities in its book value per share, and given the likelihood that SNDK will remain the low cost producer in both TLC and 3D. My view is based in part on the difference in gross margins between those achieved by Micron and those of SNDK. I don't know what the Samsung gross margins are, since the company doesn't give much detail, but I suspect that SanDisk's 48-layer 3D will be competitive with Samsung's 32-layer chips. Thus, when WDC first announced its intent to acquire SNDK, and SNDK shares were trading near $76, I sold covered call options with an $80 strike, expiring in Jan. '17. This was a conservative strategy to lock in profits at a cost of losing additional profits if the deal at $86.50 actually materialized. But the strategy did not contemplate a fall in the price of SNDK to around $40, as one person on the thread believes, based on continually reduced earnings and virtually no growth possible either in earnings or revenues from chip sales and royalties. The market is just expanding too fast for this kind of scenario to occur. Additionally, I like very much the announcement of new flagship phones from Samsung and LG, both of which have slots for additional microSD memory. This is an indication of a potential growing retail market for microSD cards, which was growing more slowly due to the embedded memory in the iPhones and in Samsung's Galaxy S6 series. I also believe that, though growth in PC desktop sales has been flat or even negative, there continues to be a shift from hard drives to SSD in this market niche, which will continue because of the speed and lower power requirements of SSD. Finally, in a period of continuing low costs of capital brought on by low interest rates, consolidation in various tech sectors has occurred at a pace that would not have been anticipated with higher interest rates. This consolidation may also affect the plans of OTHER firms to acquire SanDisk, inasmuch as buying SanDisk is the cheapest way to acquire NAND flash technology. The acquiring firm wouldn't even have to buy the fab facilities, because they are owned by Toshiba, not SanDisk. Thus, the intrinsic value of SanDisk, combined with its relatively high gross margins and high proportion of cash in its book value, reduces the downside risk and makes it extremely unlikely that the share price would fall if the WDC deal is cancelled. Art