Sandisk (NASDAQ: SNDK), the third largest manufacturer of flash memory in the world after Samsung and Toshiba, is reportedly trying to sell itself. Bloomberg reports that SanDisk has hired a bank to explore a potential sale to either Micron Technology (NASDAQ: MU) or Western Digital (NASDAQ: WDC). Shares of Sandisk popped over 11% in Oct. 14 trading after the report surfaced.

What investors need to know
Micron, a rival supplier of flash memory, could gain substantial market share by buying Sandisk and be better positioned to compete against Samsung. On the other hand, buying Sandisk would help Western Digital diversify away from its sluggish core business of platter-based hard drives. Toshiba would likely need to agree with the terms of Sandisk's buyout since the two companies co-operate flash memory plants in Japan.

Sandisk, which has a market cap of around $13 billion and over $2 billion in debt, would be a massive purchase for either company. Micron finished last quarter with just $3.5 billion in cash and $7.3 billion in debt. Western Digital has $5.3 billion in cash and $2.6 billion in debt.

SanDisk's SSD (solid-state drive) business is growing rapidly, but it lost a "major customer" this January. That loss, combined with intense competition in the SSD space, caused the company to lower its revenue guidance for fiscal 2015 in March. As a result, Sandisk shares declined 37% year-to-date before today's gains, but they still trade at 24 times earnings versus the industry average of 15. That price decline and high valuation might cause potential buyers to wait for SanDisk to get cheaper.

The key takeaway
Despite SanDisk's problems, investors shouldn't rule out a buyout yet -- 2015 has already been a banner year for semiconductor and storage-related acquisitions.

That consolidation was caused by the decline of the PC market, rising costs, and competition from cheaper players. Flash memory also remains in high demand in data centers, since they read and write memory faster, consume less power, and last longer than traditional hard drives. However, investors certainly shouldn't buy shares of SanDisk simply expecting the company to be acquired.

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Leo Sun has no position in any stocks mentioned.

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