GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Time to Bet On Western Digital for the Long Run

May 09, 2014 | About:
kcpl

kcpl

0 followers

Storage company Western Digital (WDC)'s shares have increased in the double-digits this year. The company has performed consistently well in the past few quarters and going forward, its prospects also look strong due to the expected growth in data storage. In addition, Western Digital has performed far better than rival Seagate Technology (STX) this year.

Hence, investors must bet on investing in Western Digital looking at its impressive performance since the company could be a long-term winner.

Strong Products Leading to Solid Growth

Western Digital has a strong product portfolio and is witnessing healthy momentum. The company has overtaken Seagate in terms of market share in the storage market. Seagate's market share is now 40%, while Western's is 45%. In the fourth quarter last year, the total addressable market (TAM) for hard drives grew 6 million units to 142 million. Western Digital reported almost 4% growth in revenue and 29% increase in earnings. Comparatively, Seagate’s revenue dropped 4% and its earnings were down 13%.

The storage industry’s TAM exceeded Western Digital’s expectations last quarter with the company witnessing strong demand and shipped around 63 million units. Western Digital has also experienced robust performance from the gaming segment and a seasonal pick-up in sales of branded products. In the future, this momentum is expected to continue with an increase in total exabytes shipped, along with strong response from customers.

The rapidly growing cloud computing platform in the fast-changing IT infrastructure scenario also opens up good opportunities for Western Digital. Now, the company targets at adding more value to its products and offering more customization levels to customers to tap the growth of this market.

In addition, Western Digital’s focus on new products is also very successful. Its WD My Cloud, which is a comprehensive cloud solution, and HelioSeal, which is a 6-terabyte helium-based sealed drive, is a point of attraction for many customers.

Acquisition-Driven Growth

Moreover, Western Digital’s enterprise class solid state drives (SSD) are also selling well. Western Digital’s enterprise revenue grew at a faster rate than the overall SSD enterprise market for the previous quarter as reported by the management. The acquisitions of Virident and sTec are some good moves in this department that are driving its results.

Western Digital acquired both these companies last year. The acquisition of sTec has enabled Western Digital to gain hold over more than a 100 SSD-related patents, while that of Virident has helped it strengthen its position in flash storage hardware and software. These acquisitions have improved Western Digital’s position in the industry. Further, the technique of Western Digital to integrate these new acquisitions into its business should be able to bring in more customers.

Going ahead, the stabilization of the PC market and improvement in the global economy should help Western Digital improve its prospects. With investments planned across the product portfolio, Western Digital looks set to perform well going forward.

A Stronger Position

In addition, the stronger financial position of Western Digital as compared to Seagate gives it more opportunities to make acquisitions and invest in research and development. Western Digital has $4.7 billion in cash as compared to a debt of $2.3 billion. Seagate has a debt of $3.6 billion and weak cash position of $2.3 billion. Western Digital’s debt-to-equity ratio is 27 in comparison to Seagate’s sky high ratio of 143.

Conclusion

Going forward, Western Digital’s superiority over Seagate places it in a strong position to benefit from growth in the storage market. The company is focusing on product innovation to improve its standing and has made smart acquisitions as well. Hence, investors must bet on Western Digital in the long run from an investment point of view.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK