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2 Reasons to Invest in This Storage Player for the Long Run

July 16, 2014 | About:

It would appear that Western Digital (NASDAQ:WDC) is taking a walk on its arch-rival Seagate Technology (NASDAQ:STX), as evident from the performance of their shares on the Street. While Seagate is up just 3% year-to-date, Western Digital is a clear leader with gains close to 18%. Moreover, relatively robust performance of Western Digital in the last reported quarter makes it a favorite of investors in digital-storage market segment.

Western Digital: Outperforming Seagate

Western Digital's quarterly profit climbed 28%, year over year, comfortably thrashing analysts’ estimates. As against this, Seagate’s earnings declined of 13% year over year, on top of a 4% decline in revenue. As a result, Western Digital is very confident about its distinctive position in the digital-storage landscape, and is sure-footed about its long-term growth prospects.

The company serves a large growing market which is expanding on the back of growing needs of storing digital data. Western Digital has positioned itself as a leading player in this market by collaborating with its customers to define the future of the digital data storage market. In addition, the addressable market of the company is growing at a good clip, fueled by demands on the back of strength in gaming and branded products.

However, Western Digital is not without its own share of roadblocks. Management is of the view that the industry is facing a slowdown in the ongoing quarter, as a result of tepid demand and inventory corrections. This forced Western Digital to cut its outlook for the ongoing quarter.

Acquisitions for driving growth

Going forward, Western Digital is focusing on initiatives that should drive its long-term growth. For example, the $3.4 billion acquisition of Hitachi’s hard-disk-drive operations has benefited the company. In addition, the company has recuperated from suspended operations in Thailand, which were damaged due to flooding. The partners in the supply chain and strategic customers have enabled WDC to make significant progress in partially restoring its Thailand operations.

Also, WDC announced the completion of the acquisition of Virident Systems. Virident supplies server-side flash storage for virtualization, database, cloud computing, and web-scale applications. WDC will integrate this acquisition into HGST, its wholly owned subsidiary. This will bolster HGST's strategy of addressing the changing needs of enterprise customers by providing intelligent storage solutions.

Moreover, WDC forayed into solid-state drives, or SSD, by acquiring sTec for $340 million, and will integrate this into HGST. "Solid state storage in the enterprise will play an increasingly strategic role in the future of Western Digital," said Steve Milligan, president and CEO, Western Digital Corporation. "This acquisition is one more building block in our strategy to capitalize on the dramatic changes within the storage industry by investing in SSDs and other high-growth storage products."

Western Digital continues to see good growth in both PC and non-PC businesses on a year-over-year basis. The company shipped 60.2 million hard drives in the past quarter, significantly higher than the 44.2 million units it shipped in the year-ago quarter. There’s an increasing demand for high-definition, or HD, content such as such as HD DVD and Blu-Ray. Increasing number of end users are switching to external high-capacity disk-drive solutions for storing and sharing HD content. This should boost the WDC’s addressable market going forward.


It is evident that Western Digital is a better pick than Seagate in the storage market space. The company reported robust earnings growth and its forward P/E of below 13 is truly enticing. The continually growing data-storage market along with strategic acquisitions in the high-growth segments such as SSD, will enable Western Digital to perform well going forward.

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