Seagate Technology PLC (STX) Goes Hybrid: Apple Inc. (AAPL), Western Digital Corp. (WDC)

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The long-term prospects of hard disk drive titans Seagate Technology PLC (NASDAQ:STX) and Western Digital Corp. (NASDAQ:WDC) have not looked good. In a recent article, I argued the logic of being bullish on this industry if personal computers are indeed beginning to die. It stands to reason that HDD manufacturers such as Seagate should perish as well. But Seagate has other ideas.

Seagate Technology PLC (NASDAQ:STX)Can hybrids improve the economics of storage?
The company has introduced its third-generation SSHD, or solid state hybrid drives: the Seagate Laptop SSHD, 7 mm-high Seagate Laptop Thin SSHD, and the Seagate Desktop SSHD. I think this is a smart move by Seagate, especially since Apple Inc. (NASDAQ:AAPL) recently announced its Fusion Drive, which is said to boot much faster while offering better read/write performance.

Scott Horn,Seagate Technology PLC (NASDAQ:STX)’s vice president of marketing, describes them this way:

Our new SSHDs serve up your favorite content with the lightning-fast performance you have to experience to believe. With these new drives it’s like adding a turbo-charge to your PC, without having to sacrifice capacity, at a price that’s easy on your wallet. Now consumers can create, store and consume digital content like a pro without having to spend like one.

Even though Apple Inc. (NASDAQ:AAPL) has not used the term “hybrid” to describe Fusion, the word is being used by writers and analysts in their descriptions. So if Seagate Technology PLC (NASDAQ:STX) and Western Digital Corp. (NASDAQ:WDC), which began shipping its own hybrids in January, are moving into the SSHD platform to support new industry standards from (among others) Apple Inc. (NASDAQ:AAPL), then it’s good idea. But how well will this work? More specifically, can hybrids change the economics of the desktop storage business?

That’s the question investors must first answer, which was the thesis of my previous sell recommendation. While Seagate has been able to fight the increased adoption of solid state drives, or SSDs, the company now understands that it can’t fight the rise of mobile devices infinitely. Essentially, evolve or die. But these hybrids look more like a “gap-closing” solution than anything “game-changing.” And Horn’s description of “adding a turbo-charge to your PC” sounds familiar.

Yes, yes, very impressive, but…
While the features boast tons of speed and performance, there’s a part of me than thinks… so what! As groundbreaking as these new SSHD drives might be, they are still just internal components of an industry that’s in decay. But Seagate is not the first to attempt “the next big thing in PC.” It’s a good idea, but investors have to prepare for a possible thud if expectations become too unrealistic.

There’s still a bigger issue at hand. Intel Corporation (NASDAQ:INTC) has not been able to excite consumers with new/faster PC chips. Even though they have consistently improved over the years, the company has still posted year-over-year declines in chip revenue the past three quarters. Likewise, even though Microsoft Corporation (NASDAQ:MSFT)‘s new Windows 8 operating system was a step in the right direction, the adoption among consumers have been far below the company’s expectations.

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