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Investment Overview for Western Digital (NYSE:WDC)
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Below are key drivers of Western Digital's value that present opportunities for upside or downside to the current Trefis price estimate for Western Digital:
- Consumer Electronics Units Sold:
We estimate that the consumer electronics business will grow from its current level of about 43 million units a year to 76 million units by the end of our forecast period. We also expect the prices to rise from its current level of about $60 per unit to about $75 per unit by the end of our forecast period. We can expect a potential upside of 15% to the current price estimate, if the number of units sold increases at a faster rate and reaches 120 million units by the end of our forecast period. If this growth slows, due to increasing commoditization of the external storage drives and growth is restricted to 60 million units by the end of our forecast period, we can expect a downside of nearly 10% to the current price estimate.
- Enterprise Units Sold:
We estimate that the enterprise business will grow from its current level of about 22 million units a year to 43 million units by the end of our forecast period. We also expect the prices to rise from its current level of about $160 per unit to about $190 per unit by the end of our forecast period. We can expect a potential upside of 15% to the current price estimate, if the number of units sold increases at a faster rate and reaches 60 million units by the end of our forecast period. If this growth slows, due to increasing commoditization of the external storage drives and growth is restricted to 30 million units by the end of our forecast period, we can expect a downside of nearly 10% to the current price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for Western digital at the top of the page.
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Western Digital Corporation is a leading manufacturer and developer of storage products that helps create, manage, experience and preserve digital content. The company is primarily into designing and manufacture of storage devices, networking equipment and home entertainment products under the WD (Western Digital), HGST (Hitachi Global Storage Technologies) and G-Technology brands. The company serves markets addressing storage opportunities for enterprise and cloud data centers, client, consumer electronics, backup, the internet and other emerging markets such as automotive and home and small office networking.
The company functions as two independent subsidiaries due to regulatory requirements — WD (Western Digital) and HGST (Hitachi Global Storage Technologies). Its principal products today are hard drives that use one or more rotating magnetic disks to store and allow access to data. Its hard drives are used in desktop and notebook computers, corporate and multiple types of data centers, home entertainment equipment and stand-alone consumer storage devices. The company’s other products include solid-state drives, home entertainment and networking products and software applications for smart phones and tablets.
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Mobile Computing Drives Mobile HDD Sales
We estimate that the mobile HDD business of Western Digital, driven by a robust growth in the mobile computing industry due to the penetration of notebooks and netbooks will become the most valuable division by the end of our forecast period. Currently the mobile HDD division sells nearly 68 million units per year and we estimate that till will grow to 200 million units by the end of our forecast period.
Consumer Electronics HDD Business Helps Margins
The personal external storage HDD market is fairly commoditized and users are price sensitive, which leads to lower prices and margins. Western Digital has launched a line of differentiated products in the client non-compute segement, such as the WD TV Live, WD TV Live Hub, WD TV Live Plus, home Network Storage System, WD Elements Play and DVR Expanders and similar devices which takes personal data backup to the next level. These products are a step ahead of personal external storage hard disks which are relatively low margin products and command higher prices and margins. We estimate that the consumer electronics business will grow from its current level of about 35 million units a year to 90 million units by the end of our forecast period. We also expect the prices to rise from its current level of about $60 per unit to about $75 per unit by the end of our forecast period.
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The high growth of digital content is driving the need for higher storage capacity to store, aggregate, host, distribute, manage, backup and use digital content. The need to access rich data and content is being driven by a highly mobile and increasingly connected user base. The traditional enterprise and client compute markets will continue to demand high capacity storage solutions and will be best served by hard disk drives where manufacturers compete on the ability to deliver cost effective, reliable and energy efficient mass storage devices. The increasing demand for HD content for media consumption and rich formats such as HD DVD and Blu-Ray drives the demand for high capacity disk drives solutions in the end-user market.
Pricing Trends
In early October 2011, flooding in Bangkok, Thailand caused many manufacturing industrial parks to shut down operations . Factories supporting the HDD industry's supply chain were concentrated within these industrial parks to reduce costs and improve logistics and during this temporary suspension of operations, demand exceeded supply leading to high prices in HDD's, increasing the industry's average selling price per unit. Western Digital's ASP for hard disks, surged from $55 in the third quarter to nearly $70 in the fourth quarter of 2011 due to the Thailand floods. The industry has recovered since the flooding and we believe that the prices will stabilize and then begin to fall as operations ramp up again.
Shift From Hard Disk Drives To Solid State Drives
All leading laptop manufacturers are now offering laptops with a hybrid HDD-SSD primary memory and high-end high-performance laptops with complete SSD memory. Solid state drives are much more expensive per GB and this is the primary reason for the slow adoption of SSD as the primary memory component. As production capacity increases and technology changes leads to a drop in SSD prices, we can expect that solid state drives will become a standard for notebooks and netbooks. These drives are unlikely to find extensive use in desktops in the near future.
Rise Of The Tablet Computer
All tablet computers use solid state memory chips as their primary storage memory and we estimate that tablet sales will outstrip notebook and netbook sales by the end of our forecast period. HDD memory is relatively unresponsive, slow and bulky and will not find application in tablet computers. The increasing popularity of tablet computers is the primary reason for growth in the SSD space.
Growth In Cloud Computing And Remote Storage Services
We expect Western Digital's enterprise business to be driven by businesses deploying cloud computing environments in an effort to pool resources and cut costs. Remote storage is becoming a standard for most enterprises and has even gained traction with retail customers with services like Dropbox, Skydrive and Google Drive.
To achieve the high performance needed with cloud computing, we can expect the hybrid SSD-HDD enterprise storage drives to become popular in the future.
Industry Consolidation
The storage industry as a whole is going through a phase of consolidation, as companies are unable to keep up with the constant need to improve manufacturing efficiency, the capital required for R&D and staying ahead of changing trends such as the shift to SSD.
Seagate acquired Samsung Electronics's hard disk drive business in December of 2011, and Western Digital purchased Viviti Technologies Ltd. (formerly Hitachi Global Storage Technologies) in March of 2012. We expect further consolidation as bigger players buy out small and niche players to obtain market share and more importantly gain access to research in the areas of high speed flash storage and solid state drive technology.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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