In a world where more and more data is produced, storage needs will increase constantly, both in the personal and enterprise segments. As a result, those companies dealing with data storage and handling seem poised to deliver strong growth rates in the upcoming years. However, nowadays, several ways to stow information exist and some firms look more prepared for the future than others. EMC Corporation (NYSE:EMC), Seagate Technology PLC (NASDAQ:STX) and Teradata Corporation (NYSE:TDC) are three companies in the data storage industry that offer interesting business models and deserve a closer look in order to elucidate if they stand as worthy investments or not.
EMC: Solid market position
EMC Corporation (NYSE:EMC) provides storage and security solutions and services for every level of a company's IT infrastructure. Operating in two categories, EMC Information Infrastructure and VMware Virtual Infrastructure, leads the storage segment with roughly 30% of the market share, lagging huge competitors like IBM, Dell and NetApp. By leveraging its existing assets, the firm is expected to gain greater shares of the market over the long-term, delivering aprojected growth of about 13.3% per year over the next five years to come. Meanwhile, it has developed a moat that helps retain clients due to high switching costs. This has provided not only a stable and predictable source of revenue, but also wide margins for the company
One of the main factors that have influenced in EMC Corporation (NYSE:EMC)´s success over the past few years was the VMware purchase in 2004. The acquisition helped increase information storage revenues by over 50% in five years and capture over 30% of the network storage market share. Looking forward, acquisitions, alongside internal development, should continue to play an important role in the firm´s expansion. Backing this hypothesis, are its free cash flow of over $5 billion and cash and equivalents, which bulk up to over $11 billion. Most recently, the company decided to actively manage these free cash by paying out 1.6% in the form of dividends and repurchasing substantial amounts of shares.
In the years to come, cloud computing and Big Data initiatives are expected to drive revenue growth (Zacks) as EMC Corporation (NYSE:EMC) stands in an advantaged position to benefit from the expansion in demand to occur over the next several quarters. Several strategic alliances have and will most likely continue to contribute to expansion. Trading at only 20 times its earnings, a 46% discount to the industry average valuation,while offering compelling growth prospects, a strong balance sheet, a bulky cash mattress andnow even paying out dividends, I’d recommend BUYING EMC Corporation (NYSE:EMC)’s stock.
Seagate: The primary hard-disk drive player
Seagate Technology PLC (NASDAQ:STX) is a leading manufacturer of Hard Disk Drives (HDDs), holding over 40% of the market share. However, although HDD sales remain dominant in the storage space, the firm’s long-term success seems to rely on its capability to transition into the production of newer technologies, like Solid State Drives (SSDs) and other Flash-based memory products. In the short-term, analysts expect revenues to be driven by a shift to higher-margin enterprise drives that offsets a slower PC and Laptop market demand (Deutsche Bank).
Nevertheless, Seagate Technology PLC (NASDAQ:STX)’s uncertain future andno EPS growth expected over the next years counterbalance its cheap valuation, at only 6.8 times its earnings, making it stand as a HOLD case, even despite the growth opportunities provided by developing countries with price sensitive consumers which will most likely continue to choose the much cheaper HDD technologies over newer, and about 10 times more expensive, SSDs. Meanwhile, declining HDD prices will continue to exert pressure over the firm’s margins, obliging it to maintain innovative and cut costs in order to keep earnings levels up. Consumer concentration is yet another concern for investors, as HP and Dell accounted for about 30% of last year’s total revenue; risks are high and so is the stock's volatility, expressed by a 2.99 beta.