The last couple of years have been really bad for the storage industry. The entire industry has suffered due to the fall of the PC that has resulted in reduced demand for tradition hard drives and reduced sales to OEM (Original Equipment Manufacturers). However, I believe the bad times are behind the storage companies and the stocks will appreciate due to stabilizing PC sales.
It is true that the rise of hand held devices has negatively affected storage manufacturers, but it has also opened up new avenues of growth. As the size and weight requirements of hand-held devices limit the amount of on board storage, the tablets and smart phones mostly rely on could storage applications. This high demand has created the need for tiered storage architectures. These systems use high performance SSD (Solid State Hard Drives) to increase the speed of data transfers for cloud access. Therefore, even if PC sales suffer the sales will systematically shift to this market that is expected to grow with a staggering rate of 33% till at least 2016.
Seagate Technology PLC (NASDAQ:STX) and Western Digital Corp. (NASDAQ:WDC) are the two major players in the storage industry. Both companies have released their quarterly results and these earnings hold key fundamental information which gives us a peak into not only their future but also future of the storage industry. The market is discounting the entire industry on basis of weak Microsoft Corporation (NASDAQ:MSFT)’s Windows sales. I believe it is too soon to write Windows 8 off completely and the OS has to potential to drive up PC sales. This might not be overnight, as investors expect, but a gradual process which is dependent on a gradual hardware update that can support this revolutionary touch based OS.
Western Digital Corp. (NASDAQ:WDC)
Western Digital surprised the investment community last week by reporting EPS of $2.09, 14% above consensus estimates of $1.82. There was a mammoth increase of 108% y/y in shipments to 59.2 million, and an approximately 90% y/y increase in revenues to $3.8 billion. The Net Income also soared to $335 million, a y/y increase of 61%.
The enterprise segment saw a growth of 10% and reported unit sales of 6.63 million. As mentioned above this segment is growing rapidly due to the strong growth in cloud based applications and it will continue to grow in the future. As the pre-announcement from Seagate suggests the PC sales have also stabilized due to the increased demand pull by Microsoft’s Windows 8. The Software giant has been facing analyst wrath and it has already been labeled as a product which has failed to garner consumer interest. These figures show that slow and steady Windows 8 is reviving the PC sales and meanwhile introducing the world to ultrabooks. I am bullish on the Surface Pro getting a positive consumer feedback (even if it failed on the critical front) and showcasing Windows 8 for the future PC sales.
Seagate Technology PLC (NASDAQ:STX)
Seagate pre-announced its quarterly results and pleasantly surprised its investors by announcing that it will be beating its guidance for the quarter. Against market perceptions and even its own for that matter, the company managed to ship 58 million hard drives during the quarter. It had previously given outlook of $3.5 billion in revenues and has moved it up to $3.6 billion.