Western Digital And Toshiba: The Settlement And The Guidance, Explained

Western Digital Corp WDC settled its outstanding litigation and disputes Tuesday with Toshiba Corp that could have blocked the latter’s $18-billion sale of its chip unit.

But Western Digital’s concession was not a loss, according to KeyBanc Capital Markets.

The Rating

KeyBanc analyst Weston Twigg reiterated a Sector Weight rating on Western Digital with a $91 price target.

The Thesis

Under the settlement, Toshiba can sell its assets to the Bain Capital consortium, which includes Apple Inc. AAPL and Seagate Technology PLC STX, but Toshiba Memory Corp. cannot share its internet protocol, Twigg said in a Tuesday note. (See Twigg's track record here.) 

The terms — including prioritization of the joint venture over company investments, cooperation of the operating teams, a commitment to invest evenly in future ventures and the extension of Flash Alliance and Flash Forward agreements — are seen to serve Western Digital well. 

“Overall, this is a positive event for WDC, as it removes a major overhang regarding access to future NAND capacity,” the analyst said. 

Western Digital raised its second-quarter guidance on resulting NAND pricing, boosting earnings per share from a $3.60 to $3.70 range to $3.80 and revenue from between $5.2 billion and $5.3 billion to a new midpoint of $5.3 billion.

Price Action

At the time of publication, Western Digital was set to open up 3.6 percent at $84.75.

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