Western Digital Corp. (WDC), Seagate Technology PLC (STX), and The War of the Hard Disks

Page 1 of 2

Gartner recently said in a report that all connected devices (i.e. PCs, tablets and mobile phones) are expected to grow 9% this year to 2.4 billion units, but also mentioned that the mix is changing. It is a well known fact that there is an increasing shift in consumer preferences towards smartphones and tablets leading to a decline in PC shipments; as per Gartner, it is expected to decline by 7.6% in 2013. As a result, the traditional hard disk drive (HDD) market is also experiencing a decline. Market research firm iSuppli stated that HDD shipments fell to 135.8 million units, down 2.4% from 139.2 million units in 3Q12. This brings the spotlight to two key companies in the storage sector Western Digital Corp. (NASDAQ:WDC) and Seagate Technology PLC (NASDAQ:STX).

Western Digital Corp. (NASDAQ:WDC)

To combat this increasing competition and to combat the declining sales in its HDD market, both the companies are increasingly focusing on their Solid State Hybrid Drives or SSHDs. Furthermore, both these companies have recently made strategic investments to help strengthen their product portfolio. I have provided a snippet on both these initiatives.

Hybrid Drives

Seagate has introduced its third-generation SSHD and the Seagate Laptop SSHD. Western Digital introduced a new line of SSHD Black “hybrid hard drives” that have a thickness of just 5 mm, which will be easier to use in ultrabooks.

One may argue that this is a solution for the declining HDD market, but the question still remains about the rising mobile market. These hybrids seem to be a temporary solution but are not game-changing solutions and, moreover, with the lower demand in Microsoft’s new Windows, there is still a threat with respect to the demand for these SSHDs.

However, the space on a smartphone or on a tablet is much smaller compared to a PC. Hence, while users may not be purchasing new PCs, there is definitely a demand for external hard drives, which is a convenient way to backup large data.

Further, as cloud-based storage devices gain importance, there will be a shift from local servers to cloud servers. Both companies are trying to gain market share in this space: Seagate Technology PLC (NASDAQ:STX) is manufacturing SSD and hybrid devices (Hard Disk + on-board NAND Flash) and has a target that 85% of its products will be hybrid devices by 2017. Western Digital Corp. (NASDAQ:WDC)’s subsidiary HGST is expected to release its helium-filled hard drives in 2013, which will not only run efficiently but will also be cooler.

Page 1 of 2