Naveen Selvaraj's  Instablog

As the  recovery from the economic meltdown in late 2008 takes shape, analysts and market pundits have bandied the usual list of alphabets - V-shaped recovery, U-Shaped recovery, L-shaped and so on. And some don't see any recovery at all!!

I put together some charts which show how margins and revenues have moved over the last six quarters for some of the leading semiconductor stocks. I chose semis mainly because they are  perceived to be leading indicators of a recovery.
So see the charts and you decide the shape yourself!!!

(All charts are from Gridstone Research data)
 
INTC(Intel Corp)

Margins and revenues seem to have staged a V-shaped recovery with revenues lagging slightly.

AMD(Advanced Micro Devices)


Margins have staged a V-shaped recovery but revenue still lags

NVDA(Nvidia)



Margins and revenues have staged a V. Looks like business as usual from the Oct09 quarter for Nvidia.

AMAT(Applied Materials)



Margins are a V but revenue lags well behind...Capex spending is still subdued and equipment makers are naturally affected the most

ASML( ASML N.V)



One look at ASML and we understand how another one or two quarters of sequential revenue decline could have landed them in bankruptcy zone!

KLAC ( KLA Tencor Corp)



Equipment makers are a relieved lot but there is still a steep climb as far as top line recovery is concerned.

BRCM(Broadcom)


You don't trip too hard if you don't own fabs. Broadcom vindicates the 'fabless' model for semi chip makers.

TSM(Taiwan Semiconductor)


However, owning fabs is no excuse for making losses. TSM has been a standout among the semi stocks during this downturn. For TSM, recovery is complete and its time to look for growth.

STM( ST Microelectronics)


A more diversified chip play is also a cushion against such deep bouts of recession. ST Micro was affected in the automotive and consumer segment but telecom equipment and PC chips helped it recover faster.

LLTC( Linear Technology)



Another semi stock which had positive margins through the last six quarters. Margins however seem to stage a gradual recovery only.

ONNN( ON Semiconductor)


Another diversified semi stock which has withstood the recession better. A quick V for LLTC.

SNDK(Sandisk)



For memory makers, 2008 was by itself bad. So they look better on aYOY compare in 2009. But a recovery nevertheless.

In summary, it looks like margins are back with a V but revenues are still not giving a clear picture. Probably the Dec09 quarter can give more clarity on how revenue shapes up!

Disclosure: No Positions

The Technology sector has seen robust signs of recovery in the Sep09 quarter with increase in both revenues and profits. For the 292 tech stocks(in the Gridstone coverage universe) which have reported earnings for the Sep09 quarter,  total reported revenues(in USD) have declined 9% Yoy. This compares with a 16% decline in Jun09 quarter(Read the Jun09 quarter analysis here and here)

Sep09 Quarter: Tech Sector Revenue And Profit Growth YOY

Source: Gridstone Research

However the biggest change has been in operating profits. While operating profits declined by 30% in Jun09, they declined by a relatively modest 7% decline in Sep09. This seems to have set the stage for flat or a small growth in YOY profits in the Dec09 quarter as many companies have either raised revenue and EPS forecasts and guided for good sequential growth.

The semiconductor group has been the biggest reason behind the dramatic change in fortunes. Though semiconductor revenues have declined by 12% YOY, they managed to maintain their combined operating profits at $5.6 B, just $300 M less than the Sep08 quarter.

Revenue by Industry Group: Semis Gain Traction
(All figures below in $B)

Source: Gridstone Research

Operating Income by Industry Group:  Hardware Lags Semis and Software/Services
(All figures below in $B)

Source: Gridstone Research

The semiconductor group will probably have the biggest sequential increase from Sep09 to Dec09 considering that all factors affecting their bottom-line are aligned in their favor now: Reduced inventories, purged excess capacities and increase in capital spending. To put things in perspective, Semiconductor revenues have increased from $34 B in Jun09 quarter to $37 B in Sep09 quarter. Profits however have turned around from ($0.1B) net operating losses for the Semiconductor group in Jun09 qtr to $5.6 B profits in Sep09.

Operating Margins By Industry Group

Source: Gridstone Research

Across a broad spectrum of Semiconductor stocks, the common theme in their Sep09 earnings calls was the significant increase in capacity utilization. Though this was due to reduced capacities rather than increased demand on a YOY basis, incremental demand in the Dec09 quarter will boost semiconductor margins more than the Hardware or the Software/Services group.

Here's the list of top 20 companies in terms of absolute profits reported in the Sep09 quarter(Pls note: Some biggies like Dell, Oracle are yet to report their numbers for corresponding quarters and are not included in this analysis)

Top 20 By Profits
(click to enlarge)

Source: Gridstone Research

In summary, the Sep09 quarter heralded the return to normalcy for the Tech sector and the Dec09 quarter could mark the beginning of a new phase of growth.

Disclosure: No Positions

Technology sector companies are constantly worried by two things:

1. The next disruptive innovation which could impact their business model
2.  How to survive/adapt when (1) happens

As evident from the last 2-3 months, the deal flow in the sector has accelerated with Cisco(CSCO) announcing its next gambit (Read my earlier article on Cisco) and HP(Nasdaq:HPQ) responding with its intent to acquire 3Com. HP has been on a diversification spree( have written about it here) and is probably confused about point 1(above)!! It seems more interested in purchasing 'insurance cover'(read 'additional revenue streams") rather than bother about the small matter of innovating to succeed.

What about core R&D then? Have these companies given up on spending time and money in trying to make cool new stuff or offer cool new services. With tech spending getting affected due to the downturn, we hear more news about mergers, consolidation and collaborations rather than the quest for the next big thing through increased internal R&D. In this context, I thought it would be good to look at how have the Tech sector companies fared in terms of R&D spends. The three questions I wanted to pose and answer were:

1. Has higher R&D spend in the past delivered results(top-line growth or revenue holds steady despite the downturn in 1H09)?
2. Has increased R&D spends over the last two years helped them?
3. How the large Tech sector companies stack up in terms of R&D spends and did they cut/increase their R&D spends in response to the downturn?

Let's tackle them one at a time.

1.Top 25 R&D Spenders (Absolute $ Spends)

Below is a table of the top R&D spenders in absolute dollars based on the latest quarter results(Sep09). Microsoft tops the list and it spent ~$2..06 B last quarter and that works to ~16% of revenue. Due to declining revenues, it has slashed R&D spends by 10% Yoy(or a ~$200M reduction per quarter).

Top R&D Spenders : Revenue, Revenue Growth, R&D Spend and Growth
(Click on table to view larger image)

Source: Gridstone Research

From the list of top 25 spenders, I tried to zero down on companies which were able to avoid a significant decline in revenues in  the September quarters of both 2008(pre-downturn) and 2009(recovery phase) indicating that demand for their products/services has held steady. I used a lower cut-off of (-5%) as many companies grew revenues in constant currency and currency headwinds would have led to 3-5 pps decline in revenues. Five companies met this criteria (highlighted above) namely - Oracle, EMC, Broadcom, Apple and Symantec. Of these , Oracle's revenue was boosted by a recent acquisition(BEA systems in Apr08) and so it left only four companies which have grown organically in the last year.

So companies that made the grade : EMC, Apple, Broadcom and Symantec

2.Top Companies By Growth In R&D Spends

The next target was to identify the top companies in terms of increase in R&D spends. Here, instead of Sep09, I used the Sep08 growth figures as I wanted to see if increased R&D spending prior to the downturn helped these companies in the downturn. My consideration set was all Tech companies which had at least $200 M in quarterly revenues. Here's the list:

Top 25 Companies By R&D Spend Growth(Sep08) And Their Revenue Performance
(Click on table to view larger image)

Source: Gridstone Research

I used the same criteria as used for the first - Companies which were able to grow or maintain steady revenues(with a -5% Yoy growth cut-off at lower end for currency effects). The companies which qualified were naturally bigger than the  earlier list this was effectively a list of growth stocks which had unique products or were present in sunrise industries(ex. Solar).

I applied a second criterion to the twelve stocks which passed the first criterion(highlighted in list above) : Which companies grew R&D expenses in Sep09 also indicating that they were confident that their R&D spends would continue to yield results. I chose the companies which had R&D growth rates which were more or less close to the their revenue growth rates in sep09(+/- 5%) and had higher R&D spends in Sep09 compared to Sep08.

The companies that made the grade are: First Solar, RIM, Apple, Taiwan Semiconductor, Google, VMWare,  Open Text and McAfee.

3.Top 25 Tech Companies And Their R&D Spends

I then looked at the top 25 companies by size. I wanted to see who among the biggies would pass the same revenue growth criterion used in the two categories above. Size was also important and the top 25 have achieved this position due to their prior successes(through innovation or smart acquisitions) and therefore due weightage needs to be given to that too.

Top 25 Companies In Revenue And Their R&D Spends
(Click on table to view larger image)

Source: Gridstone Research

The only new additions to the names from the two lists above were Thermofisher and Western Digital. The other interesting thing is that the top six by R&D spending(as % of revenue) : Qualcomm, Alcatel-Lucent, Ericcson, Intel, SAP and Microsoft do not make the grade. Though these companies might have innovative or market-dominating products(Microsoft, Qualcomm), they probably were focused on their existing cash cows and did nothing new to combat the downturn which affected them in 2009.

The consolidated list giving due importance to size of company and revenue performance, size of their R&D spends and increase in their R&D spends in 2008 and 2009 were:

(in no particular order)

1. Apple(AAPL)
2. Broadcom(BRCM)
   
3. Symantec(SYMC)
4. EMC Corp. (EMC)
   
5. Research In Motion(RIMM)
6. First Solar(FSLR)
7. Google(GOOG)
   
8. Taiwan Semiconductor(TSM)
   
9. VMWare(VMW)
   
10. McAfee(MFE)
    
11. Western Digital(WDC)
    
12. Thermofisher Scientific(TMO)
    
13. Opex Text(OTEX)

There is a good mix of software, hardware and semiconductor stocks clearly showing that the companies which focus on differentiation and innovation can survive testing times better than others. Going back to the beginning of the article, Cisco and HP have missed the bus in this aspect and that could explain their strategy to enter newer areas as innovation in their existing products/services is not going to guarantee long-term returns.

While investor attention is focused on more high-profile stocks like Apple, Google it would also be worthwhile to look at other stocks such Opex Text, Thermofisher or for that matter even Taiwan Semiconductor, as long-term picks. Surely they must be doing something right when they can outperform the more high-profile names.

Disclosure: No Positions

Cisco Systems (Nasdaq:CSCO) released its quarterly results update on Nov 4th but the more important announcement related to Cisco's future as a 'technology leader' came a day earlier.  Cisco announced the formation of a joint venture - Acadia with leading storage vendor, EMC Corporation (NYSE:EMC) and the leader in virtualization technology, VMWare (NYSE: VMW). Clearly Cisco primed the investor community to 'look' at the future rather than the past results. After all, Cisco has always prided itself in having a better reading of tomorrow's technology needs than most other technology leaders.

Behind all the techno-jumbo and marketing speak of this new initative, the intention seems clear. Move from lumpy equipment sales to more steady revenue streams.

"...With the introduction of Vblock TM Infrastructure Packages, the Virtual Computing Environment coalition will provide customers with a fundamentally better approach to streamlining and optimizing IT strategies around private clouds. Vblock Infrastructure Packages are fully integrated, tested, validated, and ready-to-go/ready-to-grow infrastructure packages that combine best-in-class virtualization, networking, computing, storage, security, and management technologies from Cisco, EMC and VMware with end-to-end vendor accountability."

Source: Cisco

A New Initiative, But Just The Beginning

Cisco's new initiative is possibly just the first announcement(my guess) in the serious makeover that John Chambers has in mind for Cisco. The initiative is more a solution to Cisco's own problems that Customer's problems. Customers are not buying network equipment in heaps now and even growth engines like telco roll-outs in emerging markets have slowed down dramatically.

To Cisco's credit, it had foreseen this eventuality of product sales slowing down as early as 2007. Cisco put in $150 M in VMWare as early as July 2007 for a 1.6% stake,  a month or two before VMWare's blockbuster IPO in Sep07. Cisco's bet was that virtualization coupled with more intelligent networks would help customers increase the productivity of their hardware assets- namely the huge data centers and server farms that large corporates had built to accommodate the increasing flow of data. The gamble that Cisco took is that with virtualization, more hardware capex dollars will shift to the networking layer from the data processing(server) later.

If Cisco is hungry for growth( no doubts there, surely!!), the way forward was not just product sales but something more. The Year 2009 probably accelerated this thinking with a double whammy in terms of stunted growth and nowhere to hide(read all products and all geographies are down, down and again down for the last three quarters)

Cisco's Results Show That Customer Capex Spending Is Inching Up Very Slowly

Let's look at Cisco's recent quarter results to understand why Cisco is probably moving faster with this new initiative. Cisco reported a ~13% YOY decline in revenue to ~$9 B. This is the third consecutive double-digit revenue drop for Cisco.

Revenue And Operating Profits

Source: Gridstone Research

I checked Cisco's top-line growth as way back as 2003 and could not spot a YOY revenue decline from 2003 till 2008. Though top-line growth was boosted by multiple acquisitions in these periods, it is an accepted fact that Cisco has grown over the years largely due to such acquisitions.

Third Consecutive  Double-Digit YOY Decline

Source: Gridstone Research

The revenue decline in fact is even worse when we look at product sales alone. Since service revenue has been consistently growing on a YOY basis, the overall revenue decline looks better than the product revenue decline.

Service Revenue Is  Becoming More Significant...

Source: Gridstone Research

And Is Also A More Stable Revenue Stream With Steady YOY Growth

Source: Gridstone Research

What is even more disappointing is that all geographies, except Japan, have seen a YOY decline in revenue contribution. Cisco's much touted growth engine 'Emerging markets' declined 30% YOY. All major  product categories also saw a YOY decline - Routing revenues declined 17% YOY, Switching declined 21% YOY and Advanced Technologies declined 15% YOY.

Though orders in the US have apparently stabilized by being flat on a YOY basis, worldwide orders have declined by 7-9% YOY.  More than 50% of Cisco's revenues come from outside US and so a US recovery alone will not help Cisco in the next 2-3 quarters.

From A Network Builder To A Infrastructure Creator

With a product approach, Cisco restricted its role to consulting customers on network design, product supply and final implementation. Customers typically then went to companies like IBM, Accenture etc to manage large parts of their IT infrastructure. With cloud computing gathering pace(albeit slower than anticipated) and virtualization promising to reduce the spends on server upgrades, Cisco has seized the opportunity to become a more important player in the customer's scheme of things for a future-proof and yet cost-effective IT infrastructure.

Effectively, if customers are unwilling to spend large capex dollars, Cisco is saying that it will build and operate data centers for them and remove the headache of operating and managing the network on a daily basis from the customer and also partake the risk of such capital intensive deployments. In the bargain, Cisco can also fit out such data centers with Cisco's own hardware. This approach would help Cisco move from a lumpy revenue model(which depends on large scale network roll-outs) to a more steady revenue model where Cisco develops, builds and manages important parts of a customer's IT infrastructure.

The Network And Internet Are No Longer Cisco's Only Buzzwords

From the pre-dotcom days, there is no other company which has been as closely associated with the internet as Cisco. As Cisco tries to disassociate itself from a narrow 'networking vendor' image to an 'IT Infrastructure' player, there could well be more changes in the making at Cisco.

One thing which is interesting is how such companies change their taglines and that really conveys a lot about their thinking. Cisco's current tagline is "Welcome to the Human network" which was a huge shift from its earlier tagline of "The worldwide leader in Networking for the Internet". This change was probably because Cisco wanted to develop a more consumer-friendly face and show the world that its networking technologies is not just for corporates but also for consumer's communication needs.

With Cisco's new initiative and focus on being a IT infrastructure player, I was thinking of what could be an apt tagline which could reflect the Cisco of 2010 and beyond. Here's my suggestion:

" Experience Tomorrow's Infrastructure.... Today"

A clean break from the 'Network' and moving to a larger canvass, if I may add!

Disclosure: No Positions

Success Factors, Inc(Nasdaq:SFSF), a SAAS(Software as a Service) provider of workforce performance management solutions is discovering that cloud services can also lose steam in a weak economic environment. While on the face of it, a 30% revenue growth rate is impressive, investors will not be pleased with another quarter of operating losses.

Revenue Growth Is Slowing Down Pushing Operating Break-Even Further Down The Road

Source: Gridstone Research

SFSF has delivered revenues of $38.7 M and operating losses of $(2.1) M in Sep09 quarter.and guided for revenues of $39.5 M(mid-point) in the Dec09 quarter

A Comparison of SFSF with CRM's early days

One way to judge SFSF's top-line growth is to see how growth has decelerated vis-a-vis the biggest SAAS player, Salesforce.com(NYSE:CRM). The chart below shows that SFSF's revenue growth has decelerated faster than CRM despite CRM being ~10X times larger than SFSF in terms of revenue in the previous quarter(Jul09). CRM was a $30-40M quarterly run-rate company way back in 2004. Though the macro environment would have been much better then, CRM was a category innovator and had to sell the concept and then the 'service'. Despite this CRM managed a ~80% YOY revenue growth rate in those periods. In fact CRM's growth rate dipped to sub-50% only in Jul07 when it was already a $170 M a quarter company.

CRM Vs SFSF: A Comparison Of Revenue Growth Rates(% YOY)

Source: Gridstone Research

Revenue growth and achieving a certain base of revenue is extremely important for SAAS providers since selling costs are very high(~50% of revenues) and therefore break-even can be achieved only if the company reaches a certain scale which helps it absorb such high selling costs and fixed costs to generate an operating profit.

Going back to CRM, it was quite profitable even in 2004-05 when it was the same size of SFSF. However operating profits turned to losses after the stock-based compensation accounting norms(SFAS123) kicked in and non-cash charges ate into profits. However, cash flow generation was positive despite increasing capex spends for CRM even in that period.

CRM Broke Even At $40 M A Quarter Revenues...

Source: Gridstone Research

Post stock-compensation expenses being factored in, CRM returned to profits in Apr07 quarter when it reached a quarterly revenue of $144 M. Contrast this with where SFSF stands today at ~38 M in quarterly revenues.

...Non-Cash Charges Pushed The Break-Even To ~$150 M A Quarter Revenues

Source: Gridstone Research

SFSF could break-even at probably $50M of revenues(assuming gross margins remain intact) but this has come at the cost of impacting revenue growth. As the chart below shows, SFSF has reduced sales and marketing spends in absolute $ terms and as a % of revenues. So the close to break-even income statement of 3Q09 does mislead one into thinking that SFSF can reach a steady-state of robust growth and sustainable profits in the next quarter or so.

Will Reduced S&M Spend Backfire In The Long-Term For SFSF?

Source: Gridstone Research

In the Jun09 quarter earnings call, Sucess Factors CEO Lars Dalgaard mentions that operating break-even(on a Non-GAAP basis) has been achieve in Jun09 quarter, three quarters earlier than promised during the IPO in Nov07.

Excerpt from Jun09 Earnings Call Transcript CEO comments:

"...SuccessFactors revenue grew 44% and true to the model and our promises, we drove strong margin expansion. First, gross margins expanded to 79%, up from 53% at the IPO. Cash flow positive continued and finally, SuccessFactors improved operate margin from negative 109% at IPO to breakeven. That’s operating margin profitable three quarters earlier than we promised..."

Lars has continually being saying the Performance & Talent Management is a $16 B market opportunity and so there is immense scope for growth. He mentions this in the Mar08 quarter earnings call and again in the Mar09 earnings presentation. Below is a slide taken from than presentation.

Much-Touted Market Opportunity?


At around $120 M in annual revenues, SFSF has a miniscule share(<1%) in this 'apparently' huge market opportunity.  Investors who bought into the IPO of SFSF in Nov07 were probably expecting growth rates of >50% for the initial two years atleast considering this market opportunity and the ability of SAAS services to penetrate the SMB market for these applications.. Clearly the downturn would have made them scale down the expectations. But considering its size and the apparently huge market opportunity, SFSF's decision to scale down sales and marketing spends is perplexing at best.

Scaling Back On S&M Seems A Wrong Move

Clearly at the first signs of market stability and customer IT budgets getting spent, SFSF should have focused on top-line growth rather than boasting about achieving operating break-even earlier than planned. As the CRM (Salesforce.com) success story indicates, SAAS providers need to first reach a sizeable customer and revenue base before they think of consolidation and improving profit margins. Another sore point in SFSF's growth story is that it largely been US market driven.

Concentration Risk Still Remains For SFSF

In 2008, SFSF got almost ~89% revenues from the Americas(largely US). Europe and APAC revenue contributions were still in single-digit $M. There is huge scope for improvement in this aspect when compared to CRM itself. SAAS providers are less constrained by geo constraints for product delivery while S&M expenses will naturally be heavy in every new geography that they plan to enter.

Geographic Diversification In Revenue Is Urgently Needed For SFSF...

Source: Gridstone Research

..Again CRM Shows The Way

Source: Gridstone Research

The lack of geo diversification is another reason for SFSF to increased marketing spends rather than curtailing them. SFSF revenue streams are highly concentrated in terms of both geo diversity(US) and product/service portfolio(Performance management) and there is urgent need to reduce concentration risk by diversifying in at least one if not both.

Not Many Positives for SFSF Stock And Follow-On Stock Offering Will Reduce Investor Returns

With revenue growth slowing down, there is hardly any positives for SFSF in the Sep09 quarter results. Increasingly, it looks like SAAS providers will have a tougher and long winding road to sustainable profits and continuous top-line growth. Besides these worries, the long-term success of a such 'focused' SAAS providers like SFSF seems questionable.

SFSF had a successful follow-on public stock offering of 12 M shares at $15.5 per share last week, with the underwriters( Goldman Sachs, Morgan Stanley and Deutsche Bank, no less!!!) even exercising their green-shoe option for an additional 1.8 M shares. Goldman and Morgan Stanley had also under-written SFSF's IPO in Nov,2007 which was priced at $10 per share. With a current share base of ~57.3 M shares, the dilutive effect of the additional shares is nearly 25%. While SFSF probably had no other option than raising additional equity(it had a negative book value of equity as of Sep09 quarter), clearly this only makes the stock less attractive to long-term investors. Even if investors had invested in the IPO at $10 and were currently in the money with gains of ~50%, it is unlikely that the gains are sustainable after the follow-on offering. To conclude, in all aspects, SFSF stock seems avoidable at the current price and  its current fundamentals.

Disclosure: No Positions

Western Digital( NYSE:WDC) can easily rank among the best managed large-cap tech companies today. For the first quarter of the company's fiscal 2010, it reported YOY revenue growth of 4.6% to $2.2 B and operating income grew 36% YOY to $319 M.

WDC Reported A YOY Revenue Increase...

Source: Gridstone Research

The performance is more impressive when you compare it with arch-rival, Seagate's(Nasdaq: STX) numbers. Seagate reported a 12% revenue decline for the Sep09 quarter and reported an operating income of $220 M on a higher revenue base of $2.6 B. So effectively, WDC pulls in $100 M more in profits despite having $400 M lesser in revenue accrual.

...While Seagate Had A 12% Revenue Decline YOY

Source: Gridstone Research

The key difference is that WDC sold more of mobile PC drives thereby improving its profit margins. In a rare instance, WDC managed a blended ASP increase in the Sep09 quarter compared to Jun09 quarter.

Sequential Growth In Units And Blended ASP...

Source: Gridstone Research

..And The YOY ASP Decline Has Slowed Down

Source: Gridstone Research

WDC mentions it its earnings call that it has sold ~19 M mobile HDD units while Seagate has sold ~14 M. Though Seagate has sold more drives in total (~46 M) compared to WDC( ~44 M), WDC outsells Seagate in the mobile PC arena and this has been the biggest source of its competitive edge over Seagate.

WDC is also able to turn its inventory faster than Seagate as it enjoys a better share of the buoyant netbook market . This is illustrated by the superior inventory turns that it has achieved though Seagate itself has done a no less commendable job on this front. Both the HDD vendors have a negative cash conversion cycle and this clearly suggests that the top HDD vendors hold the cards in the current demand>supply environment.

WDC enjoys superior inventory turns...


Source: Gridstone Research

...While Both Seagate and WDC have negative cash conversion cycles!!

Source: Gridstone Research

WDC, in its earnings call, claims that total industry shipments were ~152 M in the Sep09 quarter giving WDC and STX market shares of 29% and 30% respectively. Effectively these two vendors control 60% of the market. Both have consciously refrained from capacity addition in excess of demand and therefore the demand-supply balance is in their favor as of now. WDC derives ~56% of its revenues from its top 10 customers(largely OEM's) and the industry situation makes it clear the HDD oligopoly is going to benefit Seagate and WDC in the short to medium-term. A price war or excess capacity addition that could derail profitability is unlikely. Therefore both Seagate and WDC stand to benefit immensely if the PC demand stabilizes and begins to grow in the next few quarters.

WDC  is also increasing its SSD( Solid-state Devices) investments to widen its addressable market and that could provide the growth platform for the long-term. For its superior execution, favorable industry conditions prevalent now and its ability to stay at ahead of the innovation curve among peers in the HDD industry, WDC clearly stands out. WDC currently trades at a P/E multiple of 14.73( based on Oct 27 close of $35.39) and looks a good medium-term bet.

Disclosure: No Positions