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Western Digital's SanDisk Acquisition Makes It Riskier Than Ever

Spinning hard disks are fast becoming a commodity, and Western Digital (NASDAQ:WDC) knows it. Even though the interconnected web is creating more demand for storage space than ever, be it on devices, computers, or the cloud, there is a fundamental shift happening. Solid state drives are fast replacing drives. Western Digital's move to acquire SanDisk (NASDAQ:SNDK) is an expensive one, and heightens risks for shareholders.

Storage demand is slowing. Previously, companies could rely on enterprises for revenue growth. That is changing. As EMC Corp. (NYSE:EMC) demonstrated, its earnings fell from $0.28 per share to $0.25. Sales barely changed, as the company made $6.08B, compared to $6.032B last year.

Western Digital has a flaw in its plans for borrowing $18.4B to buy the overpriced firm, SanDisk. SanDisk's prospects in the solid state storage space are not assured, and trades at a premium at a stock price of $76.78. Not only is SanDisk's P/E 30 times, but the P/FCF (stock price to free cash flow) is 19.5 times. At these levels, the market is not discounting heavy competition ahead among the storage suppliers. Western Digital...


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