Data storage player Seagate Technology (STX) is facing headwinds this year. Its rival Western Digital (WDC) has captured a major chunk of the market and Seagate’s financial performance is also on the decline. There was a decline in Seagate’s revenue and profit in the previous quarter, so the company’s shares have taken a pounding in 2014.
Weakness in the business
Seagate is seeing weak sales of higher margin disk drives to enterprise customers, and is incurring higher operating expenses that put its long term prospects in danger. Further, the company’s hard-drive business is also a point of concern looking at the weakness in the PC market.
Seagate is planning to explore other areas to make up for a weak PC market. So, the company is focusing on products for mobile devices and servers. In addition, strategic acquisitions are also on the company’s list. Hence, it acquired Xyratex, a leading provider of storage data technology. This acquisition has enhanced Seagate’s vertically-integrated supply and manufacturing chain for disk drives. Above all, the acquisition also enables Seagate to expand its portfolio through Xyratex’s industry leading enterprise data storage systems and high performance computing businesses.
Restructuring on the cards
Seagate is restructuring its product portfolio to align its offerings with the emerging trends in mobility, cloud, and open source computing. The company has launched its Kinetic platform, and recently launched is 6-disk, 6-terabyte drive expanding its portfolio of high capacity drives. Looking ahead, these moves will help it in strengthening its position and grow its addressable market.
Seagate’s moves are showing good results. The company’s 5-millimeter drives are being sold by multiple tablet manufacturers and hence seeing good response in the mobile segment. In addition, Seagate is also focusing on product innovation. The company’s latest shingled magnetic recording technology is expected to overcome density barriers in hard drives and add 25% more capacity to traditional drives. The introduction of lower cost higher-capacity hard drives can help Seagate win over more customers in the server and enterprise market.
Going forward, Seagate is also looking to deepen customer engagement by providing them with more services. Also, Seagate is working on adding more value to its product portfolio and winning more customers in enterprise information technology functions due to the increasing demand for large capacity drives.
However, Seagate’s rival Western Digital is already two steps ahead of it in the enterprise storage department. Western Digital’s acquisition of Virident and sTec by spending close to $1 billion last year has bolstered its enterprise segment and has started yielding solid results.
Western Digital’s revenue increased almost 4% in the last quarter and its earnings were up 29%. More importantly, according to management, Western Digital's enterprise revenue outpaced the industry’s average in the last quarter. These acquisitions have given it a stronger base to tap this market. For example, the sTec acquisition brought over 100 SSD-related patents into Western Digital’s fold. On the other hand, Seagate struggled due to lower sales to enterprise customers.
Seagate’s rival Western Digital has been gaining share while Seagate is losing. Earlier, both companies used to command an identical share of the market, but now Western Digital is ahead with a 45% share as compared to Seagate’s 40%. Moreover, Western Digital has a very strong cash position in comparison to Seagate, which gives it more freedom to make more acquisitions and ramp up product development.
Hence, Seagate might continue to lose share to its rival Western Digital in the storage market, and so the investors should stay away from it.