Sandisk historically has been known for its flash memory cards and MP3 players, but that's changing in the hurry as the company moves upmarket to business storage gear.
On Monday, Sandisk paid $327 million for Pliant Technology, which sells enterprise solid state drives (SSDs).
SSDs don't dominate enterprise data centers, but the storage technology is being increasingly used for so-called "hot data," or information that needs to be analyzed quickly.
Pliant uses multi-level cell NAND, which is cheaper and may bolster enterprise adoption. The enterprise SSD market is expected to hit $4.2 billion in 2015, up from $994 million in 2010.
Now Sandisk will take an earnings hit. The company said Pliant will cut non-GAAP earnings by 2 percent to 3 percent in fiscal 2011. In 2012, Pliant will add to Sandisk earnings.
Add it up and Sandisk just acquired another growth engine. Sandisk's biggest growth will come from embedded memory used in smart phones, tablets and digital media devices. The problem is that those markets can turn into commodity markets in a hurry.
Pliant gives Sandisk some commodity pricing insurance.
JMP Securities analyst Alex Gauna said in a research note:
Although Pliant's revenue streams are negligible (sub $20M 2010), its proprietary controller and software technology has already secured OEM relationships that include Dell, LSI, and Teradata, and the company has a roadmap to introduce PCIe solutions not too distant future.
The plan for Sandisk is to take Pliant's technology and push it through its much larger sales channels.
Deutsche Bank analyst Bob Gujavarty said:
Sandisk has high exposure to Consumer market and with some segments becoming commoditized there was a growing need for the company to diversify. Enterprise customers place a higher premium on performance and endurance and should therefore generate higher ASPs and margins compared to Sandisk's traditional customers.
However, Sandisk won't have a cakewalk in the enterprise. It will be going up against Micron, Intel and Seagate---three companies well established in the enterprise.