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.

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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 What are the main catalysts to this company's growth? Western Digital: Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do? Institutional investors love Western Digital but insiders don't. Other Stocks in the News Is This Tech Company in Trouble? Is Netgear making the right choice on betting on home networks? Will Twitter Become the Next Big Player in Online Media? Is Twitter gearing up for a long-awaited IPO? Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Apr 23, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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