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Seagate Technology PLC (STX) & The Death Of The Hard Drive

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Seagate Technology PLC (NASDAQ:STX)The traditional PC is in decline. Sales of PCs fell by 14% in the first quarter of the year, the worst drop on record. As sales have declined, PC-related stocks have struggled.

Increasingly, consumers are opting for mobile devices over traditional PCs, while business users are finding that their existing devices are still more than capable of handling the necessary software tasks.

But even if you think the death of the PC has been greatly exaggerated, there’s one PC-related industry that seems to be in trouble no matter what.

Jim Chanos thinks PCs are going away

Short seller Jim Chanos is famed for betting against Enron ahead of its demise. In recent years, he’s shifted to PC-related names, going bearish on both Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ) prior to their shares collapsing in the second half of 2012.

Now, Chanos thinks you should sell your hard drive stocks. Specifically, you should absolutely dump Seagate Technology PLC (NASDAQ:STX) and probably Western Digital Corp. (NASDAQ:WDC), too.

Chanos seems to agree with Apple Inc. (NASDAQ:AAPL) when it comes to the future of computing — that is to say, mobile devices will replace most PCs. There’s plenty of reason to doubt this — PCs are still needed for heavy duty work — but even if you do, it’s hard to argue against the decline of hard drives.

The death of the hard drive

Someone shopping for a new PC will find that many of them lack hard drives. Cheaper laptops still offer 500GB hard drives, but at the high end, laptops sporting hard drives are hard to find — most have been replaced entirely by solid state drives.

For the same amount of money, solid state drives offer significantly less storage capacity, but boast much greater speeds. A computer equipped with a solid state drive and Windows 8 can boot up literally in a matter of seconds.

Both Seagate Technology PLC (NASDAQ:STX) and Western Digital Corp. (NASDAQ:WDC) have largely stayed out of the consumer solid state market. Seagate unveiled its first solid state drive for the consumer market only days ago, while Western Digital is sticking with hybrid drives. Overall, both companies have little exposure; the market is largely dominated by SanDisk, OCZ and Samsung.

There’s also the growing trend of cloud storage and, in the long run, cloud computing. Right now, anyone can get several gigabytes worth of cloud storage for free. Dropbox, Google Inc (NASDAQ:GOOG) (Google Docs) and Microsoft Corporation (NASDAQ:MSFT) (Skydrive) all offer free storage, and more is available to those willing to pay a monthly fee.

For every gigabyte of cloud storage a user has, that’s potentially one less gigabyte of local storage they need.

Then, there’s the trend of cloud computing. For example, I’m writing this piece using Google Inc (NASDAQ:GOOG) Docs, which is a program stored entirely on Google’s servers — it takes up no storage space on my hard drive. In time, more applications will likely adopt this model, meaning that increasingly users will find themselves needing less and less hard drive space for their applications.

The same can be said for media files. Years ago, a user may have needed to keep their music and movie files stored locally. But now, services like Netflix, Inc. (NASDAQ:NFLX) and Spotify mean that more users are increasingly streaming their media over the Internet rather than keeping it on their hard drive.

Obviously, hard drives will still have their place in servers for many years to come. But the server/client relationship is inherently more efficient and requires less total storage — a movie streamed from Netflix, Inc. (NASDAQ:NFLX)’s servers to millions of customers is more efficient than each of those million having a copy of the film on their own, individual hard drives.

Seagate’s accounting issues

Chanos hates Seagate Technology PLC (NASDAQ:STX) more than Western Digital Corp. (NASDAQ:WDC), according to Business Insider. While both companies are facing secular headwinds (the death of the industry), Seagate Technology PLC (NASDAQ:STX) is exhibiting a number of particularly grim characteristics.

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