Western Digital's (WDC) Future is in the Cloud
Shares of Western Digital Corporation (WDC), rallied at the end of last week, after analysts upgraded the electronic data storage products manufacturer. It wasn't long ago when investors were worried about the future of hard drive makers such as Western Digital and its rival Seagate (STX), fearing that a shift to high capacity flash-based memory would render its core business of hard drives obsolete. Daily Chart
Shares of Western Digital are up nearly 30% over the past twelve months, and have held up strongly over the past week even as macro and micro concerns weighed down the markets. The rising popularity of HD video has caused demand for high capacity storage devices to rise. Although higher-end consumers may now be favoring SSD (solid state drives) in their laptops and desktops, cloud-based businesses and content providers still need high capacity storage devices due to the popularity of higher quality streaming video and music formats. Cloud-based storage has recently become the industry standard, with software such as Google (GOOG
) Drive, Microsoft (MSFT
) Skydrive, Dropbox and iCloud growing in popularity with consumers who now realize the convenience and necessity of being able to easily access content across multiple platforms, such as smartphones, tablets and home computers. To support these cloud-based applications, businesses must run massive servers, which simply can't use SSDs the way individual users can due to the cost-to-storage ratio. Therefore, businesses still favor traditional multi-terabyte hard disk drives (HDDs). Cisco (CSCO
) estimates that global cloud traffic will grow 45% annually over the next three years, with 20% of this data being used for content consumption such as media streaming, messages and e-mail. On this front, Western Digital is developing new helium filled drives, which are expected to consume 23% less power but increasing maximum capacity by 40%. Helium is the second lightest element in the universe, and conducts heat better than air, thus increasing the cooling ability of the hard drive and extending its lifespan. Despite this exciting new technology, Western Digital is still aware that the cost of SSDs is steadily declining, which will eventually threaten its core HDD business model. To prepare itself for this shift, Western Digital acquired Hitachi GST last year, which gave it access to its enterprise SSD product lines. Western Digital has also produced a range of hybrid SSD-HDD products for PCs, laptops and tablets. The idea behind this design is that the operating system can be installed on the lower capacity SSD, allowing faster read and write access, while media can be stored on the higher capacity HDD. Western Digital's revenue has risen 94% over the past five years, compared to Seagate's 28.5% gain. Both companies are heavily favored to continue growing throughout 2013, fueled by the rapid growth of cloud-based storage. Shares of Western Digital currently trade at 6.4 times forward earnings with a 5-year PEG ratio of 0.88, indicating that the stock is undervalued and has high long-term growth potential. Other News About WDC Trends That Could Drive Western Digital To $60
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Published on Apr 23, 2013
By Leo Sun