Publish date:

Western Digital Wades Into Solid State

Western Digital acquires SiliconSystems and plans its SSD assault.

Western Digital

(WDC) - Get Western Digital Corporation Report

has snapped up storage component firm

SiliconSystems

, marking the hard drive specialist's entry into the Solid State Disk (SSD) market.

With the $65 million cash transaction, Western Digital is getting its hands on SSDs at a time when more and more storage firms are throwing their weight behind the technology.

"SiliconSystems' intellectual property and technical expertise will significantly accelerate our solid-state drive development program for the netbook, client and enterprise markets," said Western Digital CEO John Coyne in a statement.

SSDs, which offers faster data access speeds than traditional hard disk drives, have been gaining momentum in the last couple of years, with companies such as

EMC

(EMC)

,

Sun Microsystems

(JAVA)

and

IBM

(IBM) - Get International Business Machines (IBM) Report

all

pushing

the technology.

SiliconSystems sells its Silicon Drive products into the embedded systems market for servers and storage devices, as well as areas such as networking, communications, military and aerospace. Western Digital is now looking to exploit this product base, as well as SiliconSystems' cross-licensing agreement with

SanDisk

(SNDK)

TheStreet Recommends

,

Privately held SiliconSystems accounted for one-third of worldwide SSD revenues in 2008, according to Western Digital, which has recently

enjoyed success

with its 2.5-inch notebook drives.

With access to SiliconSystems' core technology, Western Digital's SSD efforts will now speed up dramatically, says Avi Cohen, an analyst at Avian Securities.

"We believe Western Digital had been focused on the SSD market already with an internal team working on developing a product organically," he wrote, in a note released Monday. "However, this deal accelerates Western Digital's time to market with the company now effectively entering the SSD market immediately."

The last few months have certainly been eventful for Western Digital, which competes with

Hitachi

(HIT)

,

Fujitsu

and

Seagate

(STX) - Get Seagate Technology PLC Report

. Weakening demand forced the firm to undertake a

major restructuring effort

late last year, which involved cutting 2,500 jobs, or 5% of its workforce.

Investors have nonetheless been warming to the company's stock. Despite the tech sector's recent problems, Western Digital's shares have gained more than 60% in the last three months, and were falling 4.7% to $18.58 in early trading Monday.

The hard drive specialist expects the SiliconSystems deal to be modestly accretive to its revenue and margins, although Avian Securities' Cohen thinks that it will increase the pressure on SSD manufacturer

STEC

(STEC)

.

"We see the news as negative for STEC given the likely boost to WDC's time to market with competitive solutions for enterprise SSDs," he wrote, but warned that Western Digital may need to upgrade its controller architecture with a native Serial-attached SCSi (SAS) interface.