Why This HDD Manufacturer Still Looks Great
Keki is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Western Digital (NASDAQ: WDC) made heads turn when it recently reported record fourth quarter results which were a huge contrast from the troubles it faced during the Thailand floods. And while Western Digital was on the path to recovery, rival Seagate (NASDAQ: STX) whose manufacturing units went relatively unscathed, enjoyed higher selling prices and consequently higher profits due to an overall shortage in the hard disk drive market. But in spite of all the adversities, WDC now seems back on track and ready for action.
The hard disk maker’s fourth quarter revenue almost doubled to $4.8 billion mainly on account of the huge influx from its newly acquired Hitachi Global Storage company. The result on the bottom line was even more amazing with a near fivefold increase in Net Income to $745 million. At present, WDC isn’t allowed to absorb Hitachi entirely and has to operate the unit as a subsidiary for two years. So you can say that the synergies of a combined entity would boost WDC's earnings even further in the future.
So how does WDC look for the long haul? Lets take a closer look...
The cloud is not entirely "Solid"...
Cloud computing is one area that would definitely accelerate the adoption of super fast and economical storage solutions. The entry of Amazon (NASDAQ: AMZN) with its Web services cloud offering and of late Google (NASDAQ: GOOG) with its Compute engine only goes to show how serious large companies are about entering this high growth market. And with competition intensifying, such players would want to keep costs low and performance high at the same time.
Now you must be thinking that SSDs, solid state drives, would surely be needed for cloud computing. Well, not entirely true. While SSDs may be mightier than hard drives, they certainly don’t come cheap. Considering that we face challenging economic times along with concerns about the US dipping into yet another recession next year, you can be sure that customers aren’t going to break the bank for their cloud computing needs. Instead, they would want to adopt a mix of solutions that do the job just as well, but more economically.
And here’s where hybrid disks or arrays take centre stage. Hybrid systems basically combine flash storage media such as SSDs and traditional hard disk drives, or HDDs, to yield a combination of high speeds along with higher capacity at a low cost. In other words, hard disk drives aren’t gonna get entirely replaced by SSDs any time soon because they still offer a huge cost advantage per Gigabyte over SSDs.
But the use of hybrid storage is not limited to the PC or the server room. Another area in which hybrid disks will witness huge adoption would be the Ultrabook segment.
Western Digital may not have come out with any hybrid offering so far, but reports suggest that the company is developing ultra thin hybrid drives that would power low priced Ultrabooks next year. Demand for such devices should be high because Ultrabooks that use solid state drives are generally very costly and are out of the reach of many cost conscious consumers.
And I have a hunch that such drives might find their way into tablets as well. This stems from the fact that an increasing number of people are opting to do more with their tablets rather than their personal computers. Hence, the demand for ultra-thin, ultra-light and speedy hybrid drives will be there.
The Bottom Line
For now, with an increasing number of businesses opting for cloud computing, the demand for economical storage media is bound to skyrocket. Even the smartphone and tablet boom is driving the demand for more Hard disk storage. Devices such as the Apple (NASDAQ: AAPL) iPhone and iPad which use cloud computing in some way or another necessitate the expansion of cloud storage solutions. So this definitely bodes well for hard drive manufacturers such as Western Digital.
Despite the huge jump in the stock price of late, I feel that WDC is still a good bet at least for the next few years. Beyond that, the company would have to make further inroads into the SSD space either organically or via acquisitions in order to stay in tune with the times.
So what do you think of Western Digital? Feel free to express your opinion in the comments section below.
kekidf has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Western Digital. Motley Fool newsletter services recommend Amazon.com, Apple, and Google. 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.