Public companies almost always follow up on their quarterly reports with some kind of conference call. Most of the time, it's a plain old phone conference with management and analysts. Other times, it's a live video stream with a tightly controlled management interview, or even a no-holds-barred flow of questions from common investors, submitted over social media. Either way, there will almost always be more color in these calls than a regular earnings release can provide.
Source: Western Digital.
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But when SanDisk recently reported third-quarter earnings, the follow-up was very different. Right alongside the expected report, SanDisk also announced that hard-drive veteran Western Digital is buying the company in a blockbuster $19 billion deal.
So there was a change of plans. "SanDisk will not host a third quarter 2015 earnings conference call, previously scheduled for today," said the earnings release. That call was replaced by a merger call -- but don't confuse that for an opportunity to talk about SanDisk's freshest business results.
"Please note that today's conference call, including the Q&A portion of the call, will focus exclusively on the transaction announced today," said Bob Blair, Western Digital's VP of investor relations. By and large, that order was followed.
Accordingly, there will be no discussion of SanDisk's third quarter here. For the record, the Flash-memory expert beat Wall Street's estimates across the board thanks to a highly profitable product mix.
But that won't stop SanDisk's management from getting the last word. So let's hear how the two companies are planning their big-ticket merger.
1. Data growth
This is why Western Digital and fellow hard-drive specialist Seagate will remain valuable for years to come, even without a solid-state strategy in place. Magnetic platters still provide massive economies of scale, and we're a long way away from SSD storage matching the cost per byte of magnetic storage.
That being said, Western Digital is smart to pick up an established leader in the SSD space, and I'm curious as to why Seagate isn't following suit. It's true that the Flash-memory space isn't exactly littered with handy buyout candidates anymore, but Seagate could climb down the supply chain to pick up a components specialist or two, then hammer out a solid-state strategy around that acquired expertise.
Instead, Western Digital is not only merging with a premium-grade SSD builder, but also outspending Seagate in the research department. And after this buyout closes, the combined SanDisk/WD beast will sport an R&D budget nearly twice the size of Seagate's. With or without the SanDisk deal, the bulk storage market's balance of power is shifting. This deal only accelerates the existing trend.
SanDisk CEO Sanjay Merothra. Photo: SanDisk.
2. Unmatched knowledge
Mehrotra really hits the nail right on the head here. If there's a secret sauce in this business combination, it's in the pairing of Western Digital's bulk-storage expertise with SanDisk's consumer and high-performance chops.
Seagate certainly can't match this deadly combination, as explained above. And beyond that, there are really only three hard-drive makers left in this ultra-consolidated market. Toshibaoffers both SSD and hard-drive products, but holds a vanishingly small market share in both cases, and has bigger fish to fry in the consumer-electronics space.
SanDisk plus Western Digital will be a unique business, and we don't even have a historical precedent for this chimera. I can't wait to see the products this company will cook up -- or how Seagate plans to fight back.
3. SanDisk's world didn't stop on a dime
The merger talk doesn't stop SanDisk from conducting business as usual in the meantime. Bruner's comment here is a great example of that fact.
The company is ramping up a new technology platform for higher-density Flash-memory storage. This is an essential step toward making these solutions more affordable, so SanDisk is putting its back into the effort with a major capital investment.
But the factory upgrades won't push SanDisk out of its capital expense comfort zone, and the Western Digital merger will only increase SanDisk's headroom for long-term planning. In fiscal year 2015, SanDisk spent 32% of its operating cash flows on capital expenditures; Western Digital's ratio was just 27%, and started from a much larger operating cash-flow funnel.
It's business as usual for SanDisk -- until it isn't. And I would say that the company is looking forward to an upgraded financial platform.
The article 3 Things SanDisk Corporation's Management Wants You to Know originally appeared on Fool.com.
Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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