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Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Why Disk-Drive Makers Have Years to Run by Tiernan Ray

Summary: Disk-drive stocks have dived in 2007: Seagate Technology (NASDAQ:STX) and Western Digital Corp. (NASDAQ:WDC), No.'s 1 and 2, are down 16% and 11% respectively this year due to investor concern about potentially slowing PC sales, and because some analysts feel flash memory may soon replace hard-drives in PCs. Western said in April that its quarterly profit will come in well below expectations, sparking worries over price cuts and contracting margins. But PC sales seem healthy: IDC forecasts stable 11.1% global growth. And global PC notebook growth (30%) is way ahead of desktops (1%) -- good news for Western Digital, whose notebook sales are growing at a far faster clip (100%) than overall drive shipments (30%). Flash, which currently costs 20 times as much for equal capacity as hard drives, won't replace hard-drives any time soon. At 9.4x estimated earnings, Western is far cheaper than Seagate (12.2x). The company now has about $4/share in cash, growing cash-flow, and no debt, making it a likely takeout target for an LBO according to Citigroup's Paul Mansky. "Western has an attractively valued stock for a company that is one of the premier players in a market that's set to grow at least 10% a year for several years," he says.

Related Links: Western Digital: Margins in the Drive Business Getting SqueezedBad News from Seagate Technology Presents Opportunity in Western DigitalJim Cramer's Take on WDC

Conference call transcript: Western Digital F3Q07 Earnings Call Transcript

Western Digital Co 13 05 2007

Source: Laptop Sales Will Drive Western Digital Shares - Barron's