Toshiba likely to bless a SanDisk-Western Digital deal: analysts

By Devika Krishna Kumar and Natalie Grover

(Reuters) - Toshiba, SanDisk's partner in making memory chips, is more likely to sign off on a potential takeover of SanDisk by hard drive maker Western Digital than by rival memory chip maker Micron, analysts said.

Micron Technology Inc (MU.O) and Western Digital Corp (WDC.O) are in talks with SanDisk Corp (SNDK.O) about a possible acquisition, Bloomberg reported on Tuesday.

The report came after months of intense speculation about imminent consolidation in the memory chip industry as a supply glut and cheaper products from China continue to drive down prices.

SanDisk will require Toshiba's approval to consummate a deal with either party. SanDisk uses Toshiba's foundries to make its chips and the two companies have an important intellectual property-sharing joint venture.

If Micron, which has its own foundries, buys SanDisk, Toshiba is likely to lose a lot of business. Moreover, Micron has a growing presence in the NAND-flash memory chips market and a tie up with SanDisk will immensely increase competition for the Japanese tech leader.

NAND-flash memory chips power solid-state drives, which are faster and more reliable than traditional hard drives, Western Digital' mainstay. SSDs are used in cloud computing, data centres, smartphones and laptops.

"From Micron's perspective ... you could take out two competitors at once," Cowen and Company analyst Timothy Arcuri said.

"If you can extricate SanDisk from the Toshiba JV, then you've taken Toshiba out of the NAND business and you've taken out SanDisk as well ... this would really catapult you to number 2. status behind Samsung ."

Micron and Western Digital declined to comment. Toshiba and SanDisk did not immediately respond to requests seeking comment.

SanDisk, which had a market capitalisation of about $12.6 billion as of the stock's close on Tuesday, has lost 37 percent of its value this year.

The company's stock rose as much as 14 percent on Wednesday. Micron's rose 6 percent, while Western Digital's rose 2.4 percent.

SanDisk itself would be more amenable to a bid from Western Digital, which has strong free cash flow thanks to its cash cow hard-drive business, analysts said.

Western Digital is also expected to receive a $4 billion cash infusion from China's state-backed Tsinghua Holdings Co Ltd [TSHUAA.UL], if the deal passes regulatory scrutiny in the United States.

The investment could give Western Digital the firepower to speed up SanDisk's transition from a legacy hard drive maker to a company that makes efficient chips that run data centres.

(Reporting by Devika Krishna Kumar and Natalie Grover in Bengaluru; Editing by Sayantani Ghosh and Savio D'Souza)