Western Digital (WDC) Last Update 5/14/21
Related: NTAP STX
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Western Digital
STOCK PRICE
DIVISION
% of STOCK PRICE
Client Solutions
21.3%
$20.04
Net Debt
15.7% $14.76
TOTAL
100%
$94.16
$79.40
Yours
Trefis Price
N/A
$57.05
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Western Digital Company

VALUATION HIGHLIGHTS

  1. Data Center Solutions constitute 51% of the Trefis price estimate for Western Digital's stock.
  2. Client Devices Storage constitutes 28% of the Trefis price estimate for Western Digital's stock.
  3. Client Solutions constitute 21% of the Trefis price estimate for Western Digital's stock.

WHAT HAS CHANGED?

Latest Earnings- Q3 2021

Western Digital reported net sales of $4.14 billion in Q3 '21, roughly unchanged from $4.18 billion in Q3 '20. Lower COGS and operating expenses saw operating income rise more than 2x to $317 million. A significantly lower tax rate helped EPS rise more than 10x to $0.64 from $0.06.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

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:

  • Client Devices Revenue: Western Digital's largest revenue stream, Client Devices, could see moderate revenue decline in the coming years. This can be attributed to the overall trend in the storage market with pricing pressure. However, we don't expect any significant drop in revenues for WDC, as it has sustained leadership in the consumer hard drive arena. Further the addition of SanDisk's SSD portfolio has given the company a significant advantage over competing firms. However, Seagate's future strategy could impact Western Digital negatively. If Seagate ramps up its flash portfolio and can offer similar product range, there could be loss of revenue for Western Digital. There would be a potential downside of about 10% to the current price estimate, if the company's revenues fall in mid single digits to under $6 billion by the end of our forecast period.

  • Data Center Solutions Revenue: We estimate that the combined enterprise HDD and SSD revenue revenue for Western Digital market will grow from its current level of $6.2 billion in FY 2020 to around $11 billion by the end of our forecast period. This would largely mirror the trend in the enterprise storage market globally. There would be a potential upside to the current price estimate, if the company consistently outpaces industry growth and capitalizes its strength in this space as compared to main rival Seagate. If Western Digital's data center revenues increase to $15 billion by the end of our forecast period, there would be an upside of about 15% 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.

BUSINESS SUMMARY

Western Digital Corporation is a leading manufacturer and developer of storage products that help create, manage, experience and preserve digital content. The company is primarily into designing and manufacture of storage devices, flash storage, networking equipment, and home entertainment products under the WD (Western Digital), SanDisk, 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.

Western Digital's principal products are hard drives that use one or more rotating magnetic disks to store and allow access to data as well as solid state drives. 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. Solid-state drives and flash storage products are used by data centers, enterprise clients as well as smartphone manufacturers.

SOURCES OF VALUE

Cloud Computing Drives Data Center Sales

We estimate that the enterprise storage business of Western Digital, driven by a robust growth in the cloud computing industry due to the penetration of high-end storage solutions in data centers will become the most valuable division by the end of our forecast period.

SSDs and Flash Storage Business Helps Margins

The HDD market is fairly commoditized and customers are price sensitive, which has led to lower prices and margins. Comparatively, SSD sales help drive gross margins since they have higher prices and gross margins as compared to traditional spinning disc hard drives. Although the price gap between SSDs and HDDs has narrowed over the years, SSDs are still more expensive than HDDs.

KEY TRENDS

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.

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.

Growing Usage Of Smartphones And Portable Devices

Tablets and smartphones generally use solid state memory chips or flash storage as their primary storage memory and we estimate that portable device sales will nearly cannibalize 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 portable devices 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. Subsequently, Western Digital acquired SSD manufacturer sTec, enterprise flash storage company Virident Systems and storage optimization software company Velobit in 2013. At the end of 2014, WD acquired flash array maker Skyera. Similarly, Seagate acquired hard disk drive processing equipment supplier Xyratex in late 2013 and the PCIe flash controller business LSI Sandforce from chip maker Avago Technologies in 2014. SanDisk Corporation acquired PCIe flash storage company Fusion-io in 2014. Eventually SanDisk was acquired by Western Digital and the acquisition was completed in mid-2016.