On Jun 3, 2014, we issued an updated research report on
Western Digital Corp.
Western Digital is the largest HDD manufacturer in the U.S. It
is worth noting that IT research firm Gartner expects worldwide HDD
shipments to grow at a compound annual growth rate (CAGR) of 2.9%
from 2013 (552 units) to 2018 (635.1 units).
The firm also stated that high-capacity business drives
are expected to grow at a CAGR of 25.1% during the period. Western
Digital's new high-capacity helium drives target this growth
Moreover, the company is expected to get good mileage from its
cloud-based business. Cloud-based storage has become the order of
the day as it enables the access of content through different
gadgets such as smartphone, tablets and personal computers.
We believe the secular growth of digital data and growing
exposure to the small and medium business space are the long-term
positives. The company is launching storage devices to attract more
Moreover, Western Digital's strategic acquisitions to widen its
SSD offerings are expected to position it better with respect to
peers such as
). However, continued investments in product innovation could
result in flattish margins in the near term.
Another positive can be derived from the significant rise in
contribution from the company's non-PC segment, which accounted for
53% of the revenues in the third quarter of 2014.
Nonetheless, weaker-than-expected PC shipments are affecting
Western Digital's results. According to IDC's latest report,
shipments are expected to decline 6.1% in 2014. Although the rate
of decline is expected to stabilize from 9.8% registered in 2013,
the company's return to growth remains a distant possibility.
Customer concentration is a major risk for Western Digital. In
the last reported quarter (third-quarter 2014), Western Digital's
top 10 customers contributed 44% to the revenues. Thus, the loss of
a single order or customer affects the operating performance
significantly. Competition from its peers has led to a decline in
average selling price (ASP). For the nine months ended Mar 28,
2014, Western Digital's ASP declined $3.00 from the year-ago period
to $59.00. Any further decline will impact the results if the
shipments do not improve considerably.
Currently, Western Digital has a Zacks Rank #3 (Hold). Investors
may consider a better-ranked stock like
) which sports a Zacks Rank #1 (Strong Buy).
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