Why Western Digital’s Data Center Solutions Business Is Crucial For The Company’s Success

Western Digital (NASDAQ: WDC), one of the largest providers of data storage devices and solutions, operates three primary businesses – Data Center Devices and Solutions, Client Devices, and Client Solutions. The Data Center Devices and Solutions business has been on a strong run for a while now, and we expect the business to continue delivering solid results. In this note, we expand more on this business and the factors that will likely contribute to its future growth.

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Data Center Devices Overview

Data Center Devices and Solutions includes nearline capacity helium hard drives for the data center market, enterprise-class HDDs for enterprise servers, and enterprise-class SSDs to support data analysis and other enterprise applications that usually require higher performance than those delivered by mechanical drives. These drives are usually utilized in the tier-storage system and store data for several years. This business contributes about 29% of Western Digital’s revenue and saw 8.8% growth in 2018 on the back of strong cloud-based enterprise storage demand.

What Will Drive Growth In Data Center Devices And Solutions Business?

1. Explosive Growth In IoT: With the advent of IoT (Internet of Things), there are massive numbers of devices that are producers of data. For example, an airplane with smart sensors to reduce the risk of failures generates 40TB of data per hour of flight. It is estimated that the digital universe will generate approximately 44 trillion gigabytes of data by 2020. This explosive growth in IoT will generate demand for storage, and Western Digital is right in the thick of this projected growth. Long-term supply agreements with major cloud companies will drive growth as well as revenue visibility for Western Digital.
2. Exabyte Shipments Growth: In the fiscal year 2018, Western Digital shipped 389 exabytes of data capacity.  Data Center Devices and Solutions business exabyte shipments of 183.5 exabytes contributed about 47% of that total. Furthermore, the company has already experienced 90% y-o-y growth in the first half of the current year and expects over 65% y-o-y growth for the calendar year 2018. This seems to be a reasonable expectation on account of the strong historical trends and favorable outlook.
3. Product Innovations And Improvements: Western Digital’s 10 terabytes and above capacity hard disks are doing well, and we expect this to continue in the future. The company’s recently released 14 terabyte helium drives, which are more reliable, should continue to cater to the ever-increasing needs of data centers. Meanwhile, the company will release the world’s first microwave-assisted magnetic recording (MAMR) HDDs later in the year. Moreover, the technological advancements in enterprise SSDs have enabled the company to price its products competitively. This should result in the stronger adoption of enterprise SSDs, as demand for high performance drives increases.

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