Height Securities Highlights SandDisk Patent Risk at Western Digital (WDC)

August 10, 2016 8:14 AM EDT
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Height Securities highlighted legacy patent risk at Western Digital (NYSE: WDC) related to its recent purchase of SanDisk. A patent cross-licensing and production agreement with Samsung expires on August 14, 2016 and there are no signs that another agreement will be replacing the lapsed agreement. This poses "significant risk" to the accretive value of the SanDisk business lines, if left unchecked, analyst Nils Tracy said.

Tracy commented: "SanDisk holds many of the foundational planer NAND patents. These patents have given SanDisk a competitive advantage through the existence of NAND technology. This patent dominance and a series of litigation resulted in the company entering a licensing agreement with its primary competitor, Samsung. The agreement was designed to end years of ongoing patent litigation and had little to do with the operational value of the patents, as Samsung already had similar technology. The agreement represents at least 9.29% of SanDisk revenue and an undisclosed value in reduced COGS as well as reduced litigation expenses. according to Bloomberg. The patent cross-licensing and production agreement expires on August 14, 2016. There are no signs that another agreement will be replacing the lapsed agreement. This poses significant risk to the accretive value of the SanDisk business lines, if left unchecked."



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