Seagate: What’s the Cloud got to do with It?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the concept of cloud computing and storage entering the computer arena, one wonders how this will affect a traditional company like Seagate Technology (NASDAQ: STX) that designs, manufactures and markets hard disc drives. Would it have a long term negative affect upon the company?
Presently it is not doing bad as the company announced its quarterly results in mid April. It reported $2.64 earnings per share (EPS) for the previous quarter, beating the Thomson Reuters consensus estimate of $2.10 EPS by $0.54 The Company’s quarterly revenue was up 65.1% on a year-over-year basis. On average, analysts predict that Seagate will post $2.82 earnings per share next quarter.
That was a good quarter, but what will happen to hard drives in the age of cloud computing? Is the affect upon Seagate going to be adverse? Seagate’s Enterprise Segment was affected with the shift to cloud storage as demand dropped. But this is only 13% of the company’s revenue; it will not have a huge impact. In fact hard drives are not going to go away. Unless desktop and notebook sales fall off a cliff, the number of units sold is not going to decrease dramatically. And what’s more, a great opportunity for the company exists as many companies have left the industry. There are only two main hard drive companies along with Seagate left in the industry: Western Digital (NASDAQ: WDC) and Toshiba. Western and Seagate are the only two in the U.S. with both hording 90% of the business.
Storage for cloud servers will also require hard disk drives—where does Cloud storage take place—thin air? Cloud computing will create a lot of business for Seagate because it requires large storage data centers which employ thousands of hard drives as a basic storage brick.
So the hard drive market may change but storage units will always be needed. And Seagate, being the innovative company it is, has already moved into the Cloud storage field with its subsidiary—Evault. EVault is a cloud-based online backup service and the long-term for it includes organic growth and possibly acquisitions. There are now 1,600 or so online backup and cloud storage companies. One hundred of those companies are EVault’s channel partners — including cloud-connected service providers.
Contrary to a popular misconception, Cloud based computing is not going to have a negative effect upon companies like Seagate. In fact, it is opening up a whole new field to build revenue from.
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