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A recent survey by The Online Investor (published by Forbes) revealed that Western Digital Corporation (WDC - Analyst Report) has toppled Xilinx, Inc. ((XLNX - Analyst Report)) to take over the #316 spot in terms of market capitalization.

We believe that Western Digital is reasonably priced in the $37.0 to $38.0 range. Further, it has the potential for some upward movement considering the kind of benefits that it can derive from the adoption of cloud computing. .

Companies across the world will prefer cloud computing as it provides the cheapest option for data storage with quick access. This data will be stored at an offsite server, which in turn would require huge data storage capacity. Here lies the opportunity for companies like Western Digital, EMC Corporation (EMC - Analyst Report) and Seagate Technology Plc. (STX - Analyst Report). Sensing this opportunity the company is making some marketing moves to tap this opportunity.

Moreover, Western Digital is coming up with a host of hardware and software solutions, which are particularly designed to make storage easier and more readily available. Additionally, we believe that after the acquisition of Viviti Technologies (formerly Hitachi GST) for $3.9 billion in cash and 25 million shares of the company, WDC has strengthened its foothold in the data storage business. Although the brands compete separately in the market, the deal should strengthen the company’s revenue base in the future.

On the other hand, the softness in PC demand may affect the business. Although the company has been able to handle competition efficiently, bigger players like Fujitsu Ltd, Samsung and Toshiba pose considerable challenges.

Separately, the benefits achieved from higher ASPs due to tight supply of hard disk drives (HDDs), resulting from the disruption caused by the Thailand flood, are exhausting. This is due to normalization of supply/demand metrics. This has been reflected in the company’s second quarter guidance, which is sequentially weak. However, management believes that new product launches, further cost optimization, strategic allocation of capital and efficient execution will drive customers.

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

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