4DS - Anything but Charting, page-10738

Thinking about FMV, back of napkin calculations:

If WDC is able to generate revenues of USD 1 billion (like Intel) per year and with profit margins of 20% (assumptions based on Memory Guy's research - https://thememoryguy.com/did-3d-xpoint-costs-reach-break-even/), the 4DS technology is worth USD 200m of earnings per year to WDC. Assuming a PE of 10x, that translates to USD 2b additive value to WDC. This is likely to be a future value (maybe 3-5 years out).

With a hypothetical that WDC is the only likely acquirer (not my base case), we can discount that future additive value of USD 2b to the present and account for some uncertainty of technological workability to derive what they might be willing to pay. Maybe a discount of 50%? That makes the fair offer to be USD 1.0b (which I estimate to be about AUD 1.00 per share).

If WDC is the only potential buyer, they might drive the price down further. The publication of the sales incentives table makes it known to WDC where the BoD would bite and recommend acceptance. Base would be AUD 0.50-0.60. Note that this would be a less than ideal outcome for SH because we really want more than one bidder. WDC is not going to pay more because it can only extract storage-related value out of 4DS technology and that might be capped at the USD 1 billion revenue. WDC is too wedded to storage solutions to explore other possible use cases.

If we have other potential buyers which have businesses in other parts of the semiconductor ecosystem (eg GPU, AI, DRAM) and can see other potential applications of 4DS technology to either add new revenue or lower costs, then the number of revenue lines increases and hence more value is created. That would be the ideal scenario in my mind.

(the above back-of-napkin calculations are very rough and do not take into account a lot of unknowns - like qualitative considerations that a buyer like WDC might have such as the pros and cons of licensing vs buying, and whether there is confidence that a buyer with its corporate setup can extract that kind of revenue, etc etc etc)

Sidenote: I want to do an alternate reality hypothetical where instead of 4DS declaring its intent to be acquired, it acts like a typical company where it develops a memory chip as a product, build up sales and marketing, and sells chips to clients as a supplier. A reality like this makes comparisons to WBT and BRN more tenable. What would its valuation be like? How would investors view the partnership with WDC?