We have broken down Western Digital into three divisions:
1) PC, Tablet and Laptop Storage – 38%
2) Enterprise and Cloud Storage and Networking – 31%
3) TV, DVR and External Storage – 20%
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.
The Enterprise and Cloud Storage division caters to businesses and institutional clients and its solutions are designed for mission critical. Mission critical applications are applications that are vital to the day-to-day operations of an enterprise, and these solutions require high performance and highly reliable storage solutions. These are also high capacity storage devices and have around-the-clock support. The market for mission critical enterprise storage solutions will continue grow as enterprises try to save energy costs and reduce network complexity by moving network traffic to dedicated storage area networks. These solutions are high performance enterprise class disk drives with sophisticated firmware and communications technologies.
The PC, Tablet and Laptop storage division or Client Compute applications are solutions designed for desktop, notebook and netbook storage applications. The increase in demand due to growing economies, and the continued proliferation of digital content are the primary drivers of the client compute market. One of the factors mitigating this growth is the advent of storage of digital content in the cloud. Many client compute applications now require less built-in storage (such as tablets and Ultrabooks) and SSDs are becoming more competitive within the client compute market. SSDs are also becoming more competitive as mobile computing devices such as netbooks and Ultrabooks are transitioning to smaller and thinner form factors, which can be served only by the SSD market.
The TV, DVR and External Storage or client non-compute applications are storage solutions designed for consumer electronic devices such as media recorders and disk drives used for external storage such as a portable external disk and network-attached storage (NAS). Consumer electronic storage devices are used in applications such as gaming consoles, DVRs and devices which require high capacity and low cost per GB. External and NAS devices are used in personal data backup and portable external storage to augment storage capacity in the consumer’s current desktop or notebook. Consumer electronics includes devices used to display media at home for personal media consumption. These solutions are being used to leverage the proliferation high definition and media-rich digital content.
We currently have a $61.50 Trefis Price Estimate for Western Digital, which is 25% above its market price. In the following articles we explain key risks to our valuation, trends driving the company and storage industry as a whole and other key factors affecting our valuation of the company.