Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Hard disk drive (HDD) manufacturer Western Digital Corp. (WDC - Analyst Report) recently completed the STEC Inc. acquisition. Western Digital had announced the acquisition of STEC on Jun 24, 2013, for $340.0 million. STEC specializes in providing SSDs, flash cards and USB drives for enterprise applications, as well as DRAM products for computing, communications and embedded industrial applications.

Western Digital will incorporate STEC into its subsidiary Hitachi Global Storage Technologies (HGST). Thus, it will enhance HGST's existing SSD capabilities and expand its participation in the enterprise segment.

Western Digital has been expanding its presence in the solid state drive (SSD) storage market due to the sluggish demand in the PC market (which primarily relies on HDD). SSDs are now being used in servers due to the reduction in latency, which in turn helps in faster response to real-time applications. So focusing on SSDs for the enterprise segment looks like a smart move at a time like this.  

SSDs are expensive, but they are technically superior because of their speed and energy efficiency. They also occupy less space, which makes them more suitable for mobile computing devices. The emergence of thinner laptops and tablets over the past few years has created an ideal market for SSDs, but cost has been a limiting factor. It is possible that enterprise adoption will generate the scale necessary to drive down costs and make them more suitable for the lower-priced mobile devices.

Market research firm IDC anticipates revenues from SSDs to reach $7 billion in 2017 from $2.5 billion in 2012. Thus, the acquisition is a prudent move as it will help Western Digital strengthen its SSD portfolio and grab a better share in the promising SSD market.

Western Digital has been acquiring companies to strengthen its SSD lineup. The company recently announced the acquisition of Virident Systems Inc. for $685 million. The acquisition strengthens Western Digital’s position in the storage market, especially compared to peers SeagateTechnology (STX - Analyst Report) and Fusion-io, Inc. (FIO - Snapshot Report).

The company is well positioned to pursue more acquisitions given its healthy cash from operations of $684.0 million and the cash balance of $4.31 billion on its balance sheet at the end of the fourth quarter. While the launch of new storage devices will likely attract more customers, increased innovation will continue to push up R&D expenses, which could limit margin expansion.

Currently, Western Digital has a Zacks Rank #3 (Hold).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GROUP DXYN 15.84 +7.90%
BOFL HOLDING BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%