5 Data Storage Companies to File
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Clayton Christensen opens up his book The Innovator's Delimma with a study of the disk drive market. His reasoning came from a friend, who said that geneticists avoid studying humans because it takes so long for them to produce new generations. Instead they study fruit flies because they are born, breed and die within a day, so scientists can easily see how traits are inherited through generations. Disk drive companies, his friend said, are the business equivalent of fruit flies.
I'll take the advice Christensen got and take a look at the disk drive industry as well.
Seagate (NASDAQ: STX) is one of the biggest players in the disk drive market. The company posted a profit of $2.86 billion last fiscal year or $6.72 per share, up 460 percent from the previous year's profit of $511 million. With that incredible jump in earnings, you can see why the CAPS commenters love this company.
The company's sales have soared to $14.93 billion, despite flooding in Thailand last year that has affected the industry. Much of the manufacturing for many electronics and semiconductor companies is located there. The reduced supply allowed Seagate and other companies to charge more money for fewer drives. The performance under those conditions is amazing, but no company can keep up that kind of growth up forever before regressing to the mean.
Seagate's major competitor, Western Digital (NASDAQ: WDC), did pretty well given the circumstances of the flooding. The company posted a profit of $3.64 billion last year. Inventories and receivables were pretty high at $1.2 billion and $2.36 billion respectively, relative to the company's sales of $12.478 billion. It also acquired Viviti Technolgies, formerly Hitachi Storage Technologies for $3.9 billion and 10 percent of Western Digital's stock going to Hitachi. Sales grew by 30 percent over the previous year but receivables grew by 96 percent and inventories jumped by 109 percent. Under normal circumstances, you might think that their customers are deadbeats but the flooding caused a halt in production, so these kinds of figures make sense if the inventory that didn't end up underwater sat in warehouses for a while.
EMC Corporation (NYSE: EMC) focuses on enterprise storage solutions and virtualization, with its Symmetrix line focusing on network-attached storage. The company posted a profit of $2.4 billion last year or $1.10 per share. The company had made its reputation selling large storage arrays for "Big Data," which is exactly what it sounds like: enormous databases. It also doesn't hurt that it's a major shareholder of VMware, holding over 39 million shares of the company.
NetApp (NASDAQ: NTAP) similarly focuses on enterprise and cloud storage in large networks. The company posted a profit of $605.40 million, with sales of $6.2 billion. The company's profits dipped by 10 percent but sales have been growing steadily. This combined with the company's healthy free cash flow means that you shouldn't panic and dump your stock just yet.
Finally, let's look at SanDisk (NASDAQ: SNDK), just to keep things interesting. This company focuses on removable storage, especially flash memory. This is one of the fastest areas of growth in the data storage business.
If you know anything about hard drives, you know it's a miracle that they work at all. A hard drive performs a complicated ballet of moving parts. If you've ever felt those sickening split seconds stretch out into eternity as your laptop takes a tumble off your desk, you know how poorly these drives deal with shocks or even tough jostling. Finagle's Law being what it is, this is no doubt when you're working on an important project. Manufacturers have gotten good about making hard drives hardy but ideally the moving parts should disappear. Even Seagate is getting in on this market.
Flash storage helps mitigate these concerns, even if it's still expensive. Like NetApp, Sandisk saw a slight dip last year in its revenue at $986.99 million, down from $1.3 billion in 2010. Sales have also been growing and its EBITDA actually grew to $1.61 billion, up from $1.54 billion, a change of around 4 percent.
As regression to the mean applies to companies who are growing extremely fast, it also applies to companies having temporary setbacks. These two stocks will probably have their revenues inching back up before too long.
Even as recent IPOs from Facebook and Zynga falter, the companies above are doing well, which proves that even in tech, where things change fast, data storage will never go out of style.
Fool blogger David Delony has no positions in the stocks mentioned above. The Motley Fool owns shares of EMC and Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.