Western Digital has announced its decision to split its hard disk drive and NAND memory businesses, creating two separate public companies. According to the company, the change is aimed at refining the focus and operational efficiency of each business segment. The separation, planned to be tax-free, is slated for completion in the second half of 2024, subject to necessary approvals and customary conditions.
Western Digital believes that this separation will allow each business unit — hard disk drives and NAND flash memory — to refine their strategic directions, focusing on unique market opportunities and technological innovations. By becoming independent entities, they can operate with enhanced efficiency, each with its own capital structure, allowing for more targeted and agile decision-making processes, according to the company's official rationale. This move is seen as a way to bolster each unit's position in the market, driving long-term success through focused strategies and operational efficiencies.
The decision follows a comprehensive strategic review, where various alternatives were evaluated to enhance organizational value and operational efficiency. As a result, Western Digital's board of directors decided that spinning off the company's flash memory business makes a lot of sense. Meanwhile, the company's announcements does not detail how exactly Western Digital plans to split product lineups and whether the new flash venture will retain all flash-based product lines (e.g. SSDs, flash drives), or will mostly focus on production of NAND memory.
"Our HDD and flash businesses are both well positioned to capitalize on the data storage industry’s significant market dynamics, and as separate companies, each will have the strategic focus and resources to pursue opportunities in their respective markets," said David Goeckeler, CEO of Western Digital. "We have already laid important groundwork by building market-leading portfolios and enhancing the operational efficiency of each business, including the creation of separate flash and HDD product business units and separating operational capabilities over the past several years. Additionally, we now have strong product, operational, and financial leadership in place to execute this plan successfully. Each business is in a solid position to succeed on its own, and the actions we are announcing today will further enable each company to drive long-term success in the years to come."
Western Digital obtained its NAND operations when it acquired SanDisk in 2016. Along with NAND production facilities, Western Digital got rather vast software and flash controller operations, which greatly expanded its market opportunities. Meanwhile, some of those operations were eventually merged, which somewhat reduced the company's abilities to address certain market segment. As a result, the separation is viewed as an important step in enhancing each business's ability to capitalize on market-specific growth opportunities and technological advancements.
Western Digital feels that the timing of the separation is right as industry conditions are improving, and sees it as a crucial move to unlock and enhance shareholder value further. The company remains open to exploring additional strategic opportunities that may arise, aiming to optimize the value of both the HDD and flash investments and assets. These additional strategic opportunities possibly include the acquisition of Kioxia, Western Digital's NAND partner that co-owns the company's flash memory fabs. Meanwhile, SK Hynix, another investor of Kioxia, is against the buyout by Western Digital, reportedly vetoing an offer as recently as last week. A combined Western Digital + Kioxia would form the world's largest maker of NAND flash, making it a formidable rival for the South Korean company.
