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Computer Storage Devices Industry Outlook Bright Despite Coronavirus
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The Zacks Computer-Storage Devices industry comprises companies that design, develop, manufacture and market a broad range of hard disk drives (HDDs) and solid state drives (SSD) utilized in PCs, laptops, mobiles, servers, network-attached storage devices, video game consoles, digital video recorders and a host of other consumer electronic devices.
Some of the industry participants, including NetApp (NTAP - Free Report) and Pure Storage (PSTG - Free Report) , also provide software-defined all-flash solutions that are uniquely fast and cloud capable. There are others that offer high-performance memory subsystems, enterprise storage and data management software, and hardware products and services. The industry players also offer purpose-built servers, which are used for storing and accessing data over a shared network or through the Internet.
Let us take a look at the industry’s three major themes:
Widespread use of storage options, from collocated hardware (such as hard disks and tape drives) to a multitude of cloud storage solutions has put the industry firmly on an upward growth trajectory. Extensive implementation of CRM solutions, increased Internet usage and rapidly growing media and regulatory compliance resulted in data explosion for enterprises. Notably, effective storage is essential for proper harnessing of data. The industry players are well poised for growth on the back of rapid increase in the amount of data, complexity of data formats and the need to scale resources at regular intervals. Notably, the industry players are likely to benefit from increasing demand for SSDs triggered by coronavirus-led work-from-home wave. Further, stay-at-home trends are likely to boost sales of gaming SSDs. Also, increasing utilization of surveillance and drones amid the coronavirus outbreak, is expected to favor adoption of storage products, which bodes well for the industry participants.
Companies are increasingly relying on Artificial Intelligence for IT Operations (AIOps) and machine learning (ML) for effectively managing and optimizing storage solutions. To streamline data storage, companies are relying on virtualization technologies. Further, as more data gets gathered from IoT (Internet of Things), companies are turning to edge computing architecture to reduce latency and boost flexibility. Moreover, Kubernetes storage is becoming increasingly popular as it allows greater agility and scalability. This, in turn, has bolstered the deployment of high-capacity mass storage products, which is a positive for the industry players.
However, deteriorating trend in PC shipments in the first quarter, due to coronavirus crisis-induced supply constraints, is detrimental for industry participants. This is because the demand for HDDs in manufacturing PCs is the highest and companies in this industry, including Seagate (STX - Free Report) and Western Digital (WDC - Free Report) , generate bulk of their revenues from the sale of such devices. Per Gartner’s preliminary data, PC shipments in first-quarter 2020, declined 12.3% year over year to 51.6 million units. Going by the IDC report, shipments were down 9.8% on a year-over-year basis and totaled 53.2 million in the period under review. A declining trend in PC shipments negatively impacts business prospects of industry participants, which continue to depend substantially on PC sales. Moreover, uncertainty in NAND flash pricing trends owing to coronavirus-induced supply chain constraints and weakening demand is a headwind.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer Software is housed within the broader Zacks Computer And Technology Sector. It carries a Zacks Industry Rank #64, which places it in the top 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Computer-Storage Devices industry has underperformed the broader sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 29.2% over this period compared with the S&P 500’s fall of 4.9%. Notably, the broader sector has gained 0.4% in same timeframe.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer storage devices companies, we see that the industry is currently trading at 11.4X compared with the S&P 500’s 19.31X. It is also below the sector’s forward-12-month P/E of 21.44X.
Over the past five years, the industry has traded as high as 16.45X and as low as 9.68X, with the median being at 12.22X, as the charts below show.
Forward 12-Month P/E Ratio
Forward 12-Month P/E Ratio
Bottom Line
Robust market adoption of cloud computing, big data, IoT, auto, connected devices, VR and AI will continue to aid revenue growth for the industry participants. However, deteriorating trend in PC shipments, due to coronavirus crisis-induced supply constraints, remains a headwind.
Irvine, CA-based Netlist designs and manufactures high-performance memory subsystems for the server in high-performance computing and communications markets. Notably, the consensus estimates for 2020 bottom line has improved from a loss of 8 cents to a cent over the past 60 days. The company has a long-term earnings growth rate of 15%.
Price and Consensus: NLST
Further, we are presenting two stocks with a Zacks Rank #3 (Hold) that investors may keep watch on.
Mountain View, CA-based Pure Storage provides software-defined all-flash solutions that are uniquely fast and cloud-capable for customers. The Zacks Consensus Estimate for fiscal 2021 bottom line has been steady at loss of 6 cents per share in the past seven days. The company has a long-term earnings growth rate of 18.39%.
Price and Consensus: PSTG
Dublin, Ireland-based Seagate deals in HDDs, SSDs and solid-state hybrid drives. It has gained 3.9% in the past year. The Zacks Consensus Estimate for fiscal 2020 earnings has been steady at $4.93 per share in the past seven days. The company has a long-term earnings growth rate of 1.21%.
Price and Consensus: STX
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Computer Storage Devices Industry Outlook Bright Despite Coronavirus
The Zacks Computer-Storage Devices industry comprises companies that design, develop, manufacture and market a broad range of hard disk drives (HDDs) and solid state drives (SSD) utilized in PCs, laptops, mobiles, servers, network-attached storage devices, video game consoles, digital video recorders and a host of other consumer electronic devices.
Some of the industry participants, including NetApp (NTAP - Free Report) and Pure Storage (PSTG - Free Report) , also provide software-defined all-flash solutions that are uniquely fast and cloud capable. There are others that offer high-performance memory subsystems, enterprise storage and data management software, and hardware products and services. The industry players also offer purpose-built servers, which are used for storing and accessing data over a shared network or through the Internet.
Let us take a look at the industry’s three major themes:
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer Software is housed within the broader Zacks Computer And Technology Sector. It carries a Zacks Industry Rank #64, which places it in the top 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Computer-Storage Devices industry has underperformed the broader sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 29.2% over this period compared with the S&P 500’s fall of 4.9%. Notably, the broader sector has gained 0.4% in same timeframe.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer storage devices companies, we see that the industry is currently trading at 11.4X compared with the S&P 500’s 19.31X. It is also below the sector’s forward-12-month P/E of 21.44X.
Over the past five years, the industry has traded as high as 16.45X and as low as 9.68X, with the median being at 12.22X, as the charts below show.
Forward 12-Month P/E Ratio
Forward 12-Month P/E Ratio
Bottom Line
Robust market adoption of cloud computing, big data, IoT, auto, connected devices, VR and AI will continue to aid revenue growth for the industry participants. However, deteriorating trend in PC shipments, due to coronavirus crisis-induced supply constraints, remains a headwind.
Here, we present one stock, Netlist Inc. (NLST - Free Report) , currently flaunting a Zacks Rank #1 (Strong Buy). The stock is well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Irvine, CA-based Netlist designs and manufactures high-performance memory subsystems for the server in high-performance computing and communications markets. Notably, the consensus estimates for 2020 bottom line has improved from a loss of 8 cents to a cent over the past 60 days. The company has a long-term earnings growth rate of 15%.
Price and Consensus: NLST
Further, we are presenting two stocks with a Zacks Rank #3 (Hold) that investors may keep watch on.
Mountain View, CA-based Pure Storage provides software-defined all-flash solutions that are uniquely fast and cloud-capable for customers. The Zacks Consensus Estimate for fiscal 2021 bottom line has been steady at loss of 6 cents per share in the past seven days. The company has a long-term earnings growth rate of 18.39%.
Price and Consensus: PSTG
Dublin, Ireland-based Seagate deals in HDDs, SSDs and solid-state hybrid drives. It has gained 3.9% in the past year. The Zacks Consensus Estimate for fiscal 2020 earnings has been steady at $4.93 per share in the past seven days. The company has a long-term earnings growth rate of 1.21%.
Price and Consensus: STX
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>