Seagate Flourishes As Hard Disk Drives Find New Life In Cloud Storage
Solid-state drives (SSDs) could be the way forward for information storage, but try telling harddisk (HDDs) manufacturers that they are inside the wrong business now and you will be guaranteed to get taught a lesson. Investors too, fascinated about the inevitable transition to SSDs, are ignoring the truth that a wider movement is upon them. The rush towards cloud storage is inevitably growing demand at an alarming rate.
As an increasing number of information gets stored online, companies everywhere starting from salesforce.com Inc ( CRM ) to Apple ( AAPL ) are driving up the desire for the commodity that HDD cupboard space has become. Thanks partly due to low-cost, high-storage nature of HDDs when contrasted to the opposite present in SSDs, manufacturers of HDDs have found that their medium-term future can be safer than they’re being given credit for in the marketplace.
Indeed, one of many additional reasons that HDDs makers had been taking in lofty profits stems from the truth that there was an aggressive ongoing consolidation around the face of the industry. In December 2011, Seagate ( STX ) completed its acquisition of Samsung’s HDD business for a complete of $1.375 billion in cash and stock. In March 2012, Western Digital ( WDC ) officially announced the completed acquisition of Hitachi’s HDD business. And with the finalization of those two companies, the market effectively became a duopoly were one to discount the small portion owned by Toshiba ( TOSBF.PK ).
All of this consolidation effectively comes at the heels of an industry already in recovery mode from the Thai flooding disaster which vastly served to elevate HDD prices around the board as supply shrank. Yet for Seagate, such macro picture events have only proven to be prosperous for the HDD manufacturer. Emerging practically unscathed from the flooding incidents, the corporate has seized upon a singular opportunity to thrive within the present environment.
|Western Digital Corp||$9.74 B||4.77||N/A||(35.6%)|
|Seagate Technology||$13.11 B||3.12||3.5%||275.3%|
For its own part, the corporate knows it has been rolling within the dough, and has taken full benefit of allowing the shareholder to partake during this. In January, the corporate raised the dividend yield by 39% to a cosy $1 annually. Additionally, it further supported the stock buyback plan by adding another $1 billion to its limit. As an organization now based in Ireland bound by Irish law, the corporate is needed to release its buyback information for a suite time after conducted. Investors can find that information at the company’s IR page found here. During the last month alone, investors ought to be encouraged to look that the corporate bought back nearly 3% of its outstanding shares – a testament to its own sense of self-worth. As seen below, the corporate has purchased significant a lot of shares each trading day without pause.
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On April 17, Seagate reported its 3Q earnings and knocked a house run. The corporate saw revenues rise 65% year over year to $4.45 billion and yielded an earnings per share of $2.64. This surpassed both top line and final analysis estimates which have been being modeled around $4.37 billion in revenues and an EPS of $2.10.
With analyst consensus currently expecting Seagate to earn $9.37/sh for June 2013, the figure would place Seagate with a forward price-to-earnings ratio of three.12 – an unthinkable value for many tech companies. Flash memory maker SanDisk ( SNDK ) for its part carries a forward P/E of 9.16 under its last price of $35.91. A similar goes for SSD manufacturer Micron Technology ( 0 MU 0 ) with its forward P/E of 10.71 under the last price of $6.64. It’s clear that the market continues to discount the HDD makers, however the question continues to be answered as to how long this may truly be the case.
Disclosure: i’m long 1 STX 1 .