Forget the "Cloud" for a Second

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

Technological advances of the past took decades to become fully realized, but today these steps take years or just months to cover. The trouble with tech companies is fear of obsolescence once a new innovation is created, concerning either a particular product or possibly an entire company (think Kodak). This does happen, and now all we hear about is how the "cloud" is the future, how the PC is dead, and how investors are missing out on millions. However, I believe there is more to the future and that more advancements will build upon past achievements rather than replacing them entirely. I am passionate about technology companies because of potential; my science fiction dreams give me hope.

"A digital frontier to reshape the human condition" - Kevin Flynn, Tron: Legacy (2010)

The "grid" might be a fantasy, but technology will continue to progress with companies such as Western Digital (NASDAQ: WDC) and Seagate Technology (NASDAQ: STX) today's needs. These two hardware companies are providing the world's foundation for data storage development. They can also be a cornerstone of your diversified portfolio.

Just when shareholders thought the $0.25 quarterly dividend was the biggest news story, Western Digital announced that they plan on returning half of their free cash flow to shareholders in 2013. Anyone else sense another increase in the future? Revenues have increased by nearly 30% since 2010 and appear to be heading in the right direction with the acquisition of Hitachi's hard drive unit. Once transitions of Hitachi and other absorptions are complete and settled, free cash flow should continue to thrive.

Western Digital continues to offer products with more storage, better reliability, and increased speed on a regular basis. US consumers continue to use hard-disk data storage (Black Friday deals, anyone?) but many are concerned about a slowing market on the home front. To combat this possibility, the company is investing heavily in Thailand, particular in internet connectivity. Routers are essential for a constantly-connected lifestyle and more time spent on the internet translates into increased demand for data storage. Western Digital believes the hard drive will be the most heavily used technology for storage for a long time, particularly abroad.

Seagate Technology appears to be the direct competitor, but if so the competition is beneficial for both parties. The company is forking out a dividend of $0.38 per share. The similar business model has been praised by Fortune Magazine, naming CEO Steve Luczo one of the top fifty business people for 2012. The company has solid financials featuring a healthy free cash flow and balanced revenue generation from the US/Europe and Asia. With net income the highest among its competitors, Seagate can continue to produce excellent returns.

Outside of the most developed regions, the company is looking to extend its global presence by investing in Brazil. Seagate plans to partner with IT company Alcateia in an effort to provide cloud-based devices. If you can't get that cloud thought out of your mind, look no further. 

My inner nerd combined with my market interest is hoping that one of these companies will create the digital frontier thought of in Tron: Legacy, but a more realistic world of connectivity and universal data availability is fine by me as well. If you don't share the value of this future, perhaps you share the desire for value-priced stocks; both Western Digital and Seagate Technology trade for a forward P/E of less than 5. Keeping an eye on these tech players; they have the potential to make investors seek additional storage for their returns.

Company figures taken from Morningstar.

KyleVaughan has no positions in the stocks mentioned above. The Motley Fool owns shares of 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!

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