UPDATE: SanDisk To Acquire Pliant Tech For About $327 Million

SanDisk Corp. (SNDK) agreed to acquire solid-state drive company Pliant Technology Inc. for about $327 million plus incentives, giving the flash-memory maker a foothold in the enterprise storage market.

SanDisk, once mainly known for small storage cards and thumb drives sold in retail stores, has benefited from selling flash memory chips for devices like smartphones, tablets and digital music players. The company, through its acquisition of Pliant, is now targeting solid-state drives, or SSDs, used by businesses in data centers, a market Gartner expects to soar to $4.2 billion in 2015 from $994 million in 2010.

"It's a really profitable market," Sumit Sadana, SanDisk senior vice resident and chief strategy officer, said in an interview. "We [thought we] could bring lot of the benefits of SanDisk's capabilities and marry them with the really great technology Pliant has introduced to customers and is the middle of ramping."

SanDisk shares, up 18% over the past 12 months, climbed 5.8% to $49.18 in recent trading.

Demand for SSDs has been growing as companies generate and save more data. The devices allow businesses to access their information much quicker while consuming less power than hard-disk drives, but they also typically are more expensive on the outset.

Pliant currently sells high-end SSDs to storage giants like EMC Corp. (EMC), competing against companies like STEC Inc. (STEC). The type of technology Pliant uses--known as multi-level cell, or MLC, NAND flash--makes the devices more cost efficient. That should accelerate adoption of SSDs in data centers and help SanDisk expand in the market, Gartner analyst Joseph Unsworth said.

"If you want to drive adoption of SSDs...the way to do that is going to cheaper flash but not compromising on quality," Unsworth said. "Pliant has one of the best solutions in the industry."

But even with its strong technology, SanDisk faces fierce competition in the enterprise storage market. Hard-disk drive makers such as Seagate Technology Inc. (STX) have targeted the area, as have companies like memory maker Micron Technology Inc. (MU). Most of the companies already have relationships with the storage makers, something that puts them at an advantage.

"While Pliant has a good solution, SanDisk is going to have to step up to provide more of that support and services so they can battle with these guys who have been doing this for an awful long time," Unsworth said.

No Pliant offerings currently use SanDisk flash, but the two companies have been working to qualify SanDisk's memory in Pliant's products. The process typically takes nine to 12 months, and Sadana said the first products using technology from Pliant and SanDisk should be introduced in the first half of 2012.

SanDisk expects the deal, projected to close in the current quarter, to cut 2011 adjusted earnings by 2% to 3% and add to profit, excluding items, starting next year.

SanDisk last month reported its first-quarter profit fell 4.5%, though revenue growth topped expectations and executives said they expected demand would remain strong despite supply constraints in Japan.

"As they build their presence in the enterprise server and storage market, there's more consistency, better profits and a different level of [original equipment manufacturer] relationships than they've had before," Wedbush analyst Betsy Van Hees said. "It's an area they've definitely been lacking."

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

(Tess Stynes contributed to this report.)

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