If you haven’t heard, Western Digital Corp (NASDAQ:WDC) — a data storage firm that has a 47-year history in Silicon Valley — is in a cage match with Japanese tech titan Toshiba Corp (USA) (OTCMKTS: TOSYY). And WDC stock holders may eventually find themselves the winner.
One of Toshiba’s divisions is Westinghouse, a formerly U.S. company that now specializes in building one of the only nuclear reactors in the market.
In the old days of nuclear energy, virtually every plant built in the U.S. (and abroad) was custom-built. That lent itself to major issues, both on the cost side and the safety side. It is the main reason U.S. utilities stopped building nuclear plants. But as China rose to power and Japan was interested in limiting its strategic exposure to imported oil, there was a resurgence in nukes. Toshiba bought out ailing nuke maker Westinghouse to supply the growing market.
Since the early days, Westinghouse was about the only game in town, and it only produced one type of power system: the AP 1000. This was an immense help to building costs and safety issues. Things were going along fine until the recession hit. The momentum to build a new generation of nukes faded in the U.S., and the Chinese slowed their projects.
But the final straw was when Westinghouse was trying to build new nukes in South Carolina and acted a project manager, a role the firm usually never handled. It turned into a nightmare. And at this point, construction has shut down and Westinghouse has all but imploded.
Those significant losses – according to Bloomberg, about $8.4 billion in losses for the fiscal year ended in March – have forced Toshiba to figure out how to replace that lost revenue. One effort was to sell its memory division, Toshiba Memory Corp (TMC).
Western Digital, with a consortium, has made an offer to buy TMC from Toshiba, but so far, Toshiba is more interested in a bid from a Japanese consortium that includes South Korea’s SK Hynix. Complicating matters is the fact SanDisk, which is now owned by WDC, had a joint venture with Toshiba Memory.
That’s why WDC stock is bouncing around. But even during all this tumult, Western Digital shares are up nearly 20% year-to-date, and the company recently came in with blockbuster earnings (up 227% YOY) and revenue (up 38%).
Yet instead of celebrating, investors have stayed dour. And that’s to our advantage.
This is certainly a nasty fight, but it looks like some accommodation will be made to WDC regardless of what happens. And in the worst-case scenario, Western Digital may have to spend a quarter or two ramping up new production facilities.
But that legwork is already underway — you don’t survive 47 years at the highest level of the global tech industry without learning a thing or two.
EDITOR’S NOTE: This story has been corrected to fix errors concerning Western Digital’s relationship with Toshiba.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
