Western Digital (WDC): Samsung Renewal Agreement Overblown - Susquehanna

August 11, 2016 6:43 AM EDT
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Price: $53.63 +0.21%

Rating Summary:
    25 Buy, 9 Hold, 3 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 11 | Down: 23 | New: 30
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Susquehanna analyst, Mehdi Hosseini, reiterated his Positive rating on shares of Western Digital Corp. (NASDAQ: WDC) ahead of the pending licensing renegotiation with Samsung. The analyst believes the risk is overblown and argues the downside risk to 2017 EPS is limited to 10-12%.

The lack of a license renewal announcement with Samsung has raised investor concerns (current agreement expires 8/14) that either: 1) a renewal will result in significantly lower royalty streams than in past, or 2) Samsung may choose to walk away from the license agreement on the hopes that current 3D NAND technology is not covered by SanDisk/ Toshiba IP.

The analyst stated "We simply do not see any reason for Samsung risking injunction (no matter how probable) on its growing SSD business, particularly given how much Samsung is investing in NAND capacity (~$8B/year). Moreover, our conversations with industry contacts suggest a more likely scenario could be net-positive for WDC, in which the new license agreement could see a reduction in royalty/unit, but a lifting of the cap on units - which could potentially result in a higher royalty revenue stream than prior trends".

No change to the price target of $80.00

For an analyst ratings summary and ratings history on Western Digital Corp. click here. For more ratings news on Western Digital Corp. click here.

Shares of Western Digital Corp. closed at $43.17 yesterday.

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