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Western Digital: Storage Growth Will Take This Stock Higher

July 10, 2014 | About:

Western Digital (NASDAQ:WDC)'s performance has been outstanding this year, outperforming peer Seagate Technology. This reflects in the share price performance of the two companies. While the stock of Seagate has plunged about 10% this year, Western’s share has gained approximately 3%. This is why it can be a better choice for investors in the long run.

Strong growth

Western Digital posted handy growth of 28% in its revenue in the previous quarter, outpacing market estimates. The performance was fueled by sales of higher-margin data storage products to enterprise customers and gaming console makers. In comparison, its rival Seagate was struggling with its top and bottom line performance, as its revenue was down almost 4% year over year while its net profit slumped around 13%.

In addition, Western Digital has created a competitive edge over its peer. It has positioned itself well in the storage ecosystem. This will help the company penetrate the market and gain extra share.

Moreover, the company is strongly positioned in the digital market as it continues to invest strategically in innovation, and has collaborated with customers to define the future digital data landscape. Also, the total addressable market for Western Digital seems to be growing, driven by seasonal demand on the back of strength in gaming and branded products.

Long-term moves

Western Digital has made some productive moves recently that would accelerate its profit going forward. The company is expected to benefit from the $3.4 billion acquisition of Hitachi’s hard-disk-drive operations. Moreover, the company has recovered successfully from the suspended operations in Thailand due to flooding that damaged its facilities.

In addition, supply partners and strategic customers have enabled Western Digital to make substantial progress in partially restoring its operations in Thailand. Western Digital has been bringing more production back online that should increase its overall profitability.

The company has recently completed the acquisition of Virident Systems, a provider of server-side flash storage for virtualization, database, cloud computing, and webscale applications. Virident will be integrated into HGST, a wholly-owned subsidiary of Western Digital. The acquisition is based on HGST's strategy to address the rapidly changing needs of enterprise customers by delivering intelligent storage solutions that maximize application performance by leveraging the tightly coupled server, storage, and network resources of converged data center infrastructures.

Western Digital has also completed the acquisition of sTec, an early innovator in enterprise solid-state drives. sTec will also be integrated into HGST, and should help the company profit from the growing adoption of solid state drives.

Apart from this, the company anticipates strong growth as demand for cloud storage is continuously increasing with the roll out of 4G LTE. Moreover, the company has witnessed strong volume in both PC and non-PC businesses on a year over year basis. Besides, it ended up shipping a total of 60.2 million hard drives in the previous quarter, a solid jump over the 44.2 million units it moved in the year-ago quarter.

The increase in demand for high definition content such as HD DVD and Blu-Ray should drive demand for high capacity disk-drive solutions. As more consumers are turning to external drives to increase their existing storage capacities to create and share HD content, Western Digital should see a boost in its addressable market.


Western Digital reported solid earnings growth in the previous quarter as we saw above, and this makes it a steal at just 20 times trailing earnings. Also, the strong momentum and strong growth in data storage should drive its performance going forward, along with key acquisitions. Also, looking at its robust performance, it is quite evident that Western Digital is a better pick than Seagate in the storage space.

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