Western Digital Corp (NASDAQ:WDC) has made a number of strategic acquisitions to focus more on the Solid State Drive segment, which the company is hoping will place it in a better position as the PC sales continue to decline. The stock is up 69% YTD and trading near the 52-week high. Is WDC still a buy after such a big run?
Hard disk drive technology has dramatically improved over the past decade, enabling these drives to hold ever-larger amounts of data. However, disk drives are being replaced by flash drives, which have no moving parts, consume less power and are much smaller. A much better fit for today's smartphones, tablet computers, and laptop computers. Western Digital acquired three flash drive companies over the past five months, Virident, sTec and VeloBit.
During the most recent quarter, Western Digital shipped 62.6 million hard drives at an average selling price of $58. Although the reported shipment was up from $59.9 million sequentially, it was up only marginally from the same quarter a year earlier with a shipment of $62.5 million. However, the average selling price for the quarter was down from $60 million in the previous quarter, and $62 million in the year-ago quarter. More than half of the quarter's revenues came from non-PC applications, while the company reported $106 million in revenue contribution from the Enterprise Solid State Drive segment, which increased from $104 million in the previous quarter and $70 million contributed in the year-ago quarter. Shares of WDC are still trading below long-term resistance, even after moving up over 13% in the last three months, based on the real-time trading report published by Stock Traders Daily.
The move into the Solid State Drive space puts Western Digital up against bigger competition like Intel Corporation (NASDAQ:INTC) and SanDisk Corporation (NASDAQ:SNDK) Western Digital continues to manufacturer the older hard disk drives along with the newer hybrid drives and Solid State Drives. The Virident acquisition cost Western Digital 685 million in cash, but Virident makes the fast growing PCIe card, which is expected to grow at 31% annually over the next three years. Speaking of growth, Virident as a company saw its revenue increase by 200% on a year-to-year basis. Virident helped high profile companies like LinkedIn Corp (NYSE:LNKD) fine tune their service by allowing users to better identify people they should follow and provided analysis that delivered a better customer experience.
Completion of the sTec acquisition follows company's recent purchase of VeloBit, an advanced SSD caching software company, and now the acquisition of Virident, an innovative provider of server-side flash storage solutions. Collectively these strategic moves help expand Western Digital's presence in the Enterprise Solid State space.
The recent acquisitions that the company made should better position the company to focus on its non-PC related revenues. The future looks strong for Western Digital with growing demand for higher priced, lower storage Solid State Drives. However, competition is will be more difficult and it may take some time to transition all the parts from recent acquisitions into one. The stock is up over 160% in the last two years, and smart money will be watching the price. The stock is getting closer to a test of long-term resistance. According to rule, we are sellers at resistance, and as long as the stock remains below resistance, we expect lower levels and a test of support. Based on the real-time trading report published by Stock Traders Daily, WDC is a sell/short at resistance, with risk controls in place if resistance breaks higher.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.