Is Western Digital A Solid Long-Term Bet?

| About: Western Digital (WDC)


Western Digital is performing better than Seagate with solid earnings growth and market share gains.

Western Digital’s acquisitions look promising and should deliver long-term value.

Rapid growth in SSDs and enterprise storage are catalysts for Western Digital.

It looks like Western Digital (NYSE:WDC) is stealing a march on its arch-enemy Seagate Technology (NASDAQ:STX). The first evidence of this fact can be seen in the share price performance of the two companies. While Seagate is down more than 10% this year, Western Digital has inched up slightly to the tune of 2.62%. Even the recent results of both companies show that Western Digital is performing better than Seagate, which is why it could be a better choice for investors in the long run.

Western Digital: Outperforming Seagate and more

Western Digital's quarterly profit rose 28% year-over-year and beat Wall Street estimates, driven by sales of higher-margin data storage products to enterprise customers and gaming console makers. Comparatively, Seagate's performance in the previous quarter was nothing to write home about as the company's revenue fell almost 4% year-over-year while earnings dropped 13%.

Moreover, Western Digital is quite positive about its unique position in the storage ecosystem, enabling a broad-based perspective on several changes that are underway. It serves very large markets followed by strong data growth prospects. Strategically, it is very well positioned to play a leadership role by innovating and collaborating with its 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.

But then, Western Digital had to cut its revenue outlook for the first quarter. Management said that the industry's total addressable market for hard drives in the ongoing quarter was lower than expected as a result of weak demand and inventory rebalancing.

Long-term moves

Western Digital has made some impressive moves of late that should help it profit in the long run. The $3.4 billion acquisition of Hitachi's hard-disk-drive operations has benefited WDC. The company also recovered healthily from suspended operations in Thailand due to flooding that damaged its facilities. Western Digital has been bringing more production back online. In addition, its supply partners and strategic customers have enabled Western Digital to make substantial progress in partially restoring its operations in Thailand.

Western Digital also announced the completion of 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 datacenter infrastructures.

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

Western Digital continues to see robust growth due to storage demand. The company saw volume increases in both PC and non-PC businesses on a year-over-year basis. Western Digital 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 (HD) 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.


It is quite evident that Western Digital is a better pick than Seagate in the storage space. The company reported solid earnings growth in the previous quarter as we saw above, and this makes it a steal at just 20 times trailing earnings. The continued growth in data storage and key acquisitions should enable Western Digital to perform well in the future, making it an intriguing investment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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