Western Digital: Well-Equipped to Face the Rising Competition

Awais is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The success of information technology companies is driven by their ability to innovate. The benefits of moving first also stand to be the greatest in this industry. Some companies try to add to their service portfolio by acquiring other IT companies that possess differentiating products. The recent move by Western Digital (NASDAQ: WDC) to acquire VeloBit makes the company fall under this category.

How does the acquisition of VeloBit benefit Western Digital?

VeloBit is a private provider of breakthrough I/O acceleration technology and server density optimization. Western Digital intends to fully combine VeloBit with HGST, a wholly owned subsidiary of the company. The intended integration will assist in HGST's journey to deliver value for datacenter storage via software utilization, to attain higher performance.

VeloBit is expected to increase storage system performance through more efficient usage of processor and storage resources. This is achieved through an added transparent acceleration layer that utilizes solid-state drives (SSDs) to boost performance.

Together with VeloBit's SSD caching software, HGST will now be better equipped to supply corporations with low latency and high IOPS solutions for larger density. This purchase augments with Western Digital's proposed sTec acquisition for HGST. It also highlights Western Digital’s eagerness to enter the enterprise SSD space. The current acquisition of VeloBit, along with the proposed purchase of sTec, should add to HGST’s technology standing and IP portfolio, with supplementary engineering and design resources.

<img alt="" src="http://g.fool.com/editorial/images/57155/1_large.png" />

Source: Western Digital Acquires VeloBit for Integration into HGST

Western Digital is currently implementing a strategy to enhance value of datacenter storage products on the whole. The acquisition of VeloBit is a partial way to achieve the company’s targeted goal.

VeloBit adds immense efficiency with five times higher number of desktops being run at three times lower the cost, while the average boot time would reduce by 11 times. This purchase has also increased the range of Western Digital's service offerings in the high growth enterprise solid-state storage market.

Solid-state runs store data on microchips that command hard drives, rather than magnetic platters. They are usually thought of as faster and more dependable, though at an increased cost.

The acquisition is aimed at catering to the customers' needs. This is planned to be achieved through tightly integrating storage optimization software with the hardware.

Where do competitors stand?

EMC (NYSE: EMC) also has its operations centered around developing and delivering information infrastructure and virtual infrastructure technologies, solutions, and services. EMC recently introduced a range of new products. The new data domain systems will provide four times more efficient performance.

It is expected to provide 27 times more scalability compared to rival companies. Customers will be able to remove storage silos by merging backup and archive data on one storage platform. Cloud backups will now be easier to scale and manage, utilizing the new features included in Mozy.

EMC also acquired privately held Aveksa. This will extend EMC’s RSA’s vision of Adaptive IAM. Its purpose is to convert traditional static systems into efficient and scalable “situational perimeters” to assist corporations in managing user lifecycles and access across corporate and cloud environments.

NetApp (NASDAQ: NTAP) is also a key player in the industry. The company looks forward to investing $15 million in ecosystem sales collaboration and technology integration with Microsoft to speed up the implementation of corporate cloud deployments. The NetApp Partner Program supplements the company’s current offerings in the Microsoft Cloud OS Acceleration program.

Conclusion

With the competition growing stiff, it may be hard to pick the better performing company. To begin with, my core company, Western Digital, is taking strong steps to increase its market presence by providing highly efficient services. The recent acquisition carries immense upside potential, which will benefit HGST.

However, the company does not have a history of paying dividends. Price appreciation is the only form of return for investors. In my opinion, the investment is recommended for investors who can lock their money for some time till the synergies start reflecting in the price.

With rigorous product launches coupled with the acquisition, EMC has strengthened its foothold in the market. The future of the company is very bright as it strives to stay ahead of others through innovation. The company has also begun declaring dividends from 2013. The company is a buy candidate for investors who look forward to getting regular income along with the price return upon sale.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


Awais Iqbal has no position in any stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus