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Low IT Spend Mars Computer Storage Devices Industry Outlook
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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 Pure Storage (PSTG - Free Report) and NetApp (NTAP - 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 provide purpose-built servers, which are utilized for storing and accessing data over a shared network or through the Internet.
Let us take a look at the industry’s four major themes:
The industry players have been reeling under the impact of the coronavirus crisis-induced macroeconomic woes. The coronavirus crisis led lockdowns brought about a shift in consumer buying patterns. As a result, the broader macroeconomic weakness across small and medium sized businesses has raised concerns regarding the industry’s prospects. A slowdown in enterprise IT spending as estimated by IDC, amid coronavirus crisis-led economic downturn, remains a major concern. Moreover, the supply chain has been disrupted by social distancing and shelter-in-place restrictions owing to the ongoing pandemic, which in turn has severely impacted these companies. Although economies are gradually reopening in several parts of the world, production delays remain a woe. Moreover, the U.S.-China trade war induced tariffs have been hindering growth of the industry participants for quite some time now. The uncertainty in business visibility has impacted investors’ confidence and is likely to weigh on the industry’s performance at least in the near term.
However, coronavirus crisis induced work-from-home and stay-at-home trends have triggered demand for data-intensive applications like video conferencing and cloud services. Notably, effective storage is essential for proper harnessing of data, and is expected to accelerate demand for high storage capable SSDs. Moreover, the impending 5G boom is likely to propel the industry to newer heights. Moreover, extensive implementation of cloud computing solutions, increased Internet usage and rapidly growing media and regulatory compliance driven by coronavirus-led work-from-home wave has resulted in data explosion for enterprises. Further, stay-at-home trends are likely to bolster 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.
Extensive 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 growth trajectory. 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. Moreover, 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. Additionally, 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.
Also, improving trend in PC shipments in the second quarter, due to coronavirus crisis-induced supply constraints, is likely to positively impact business prospects of the 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 second-quarter 2020 increased 2.8% year over year to 64.8 million units. Going by the IDC report, shipments were up 11.2% on a year-over-year basis and totaled 72.3 million in the period under review. Moreover, improving NAND flash pricing trends owing to coronavirus-induced supply chain constraints is a tailwind.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Computer Software is housed within the broader Zacks Computer and Technology Sector. It carries a Zacks Industry Rank #244, which places it in the bottom 3% 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 weak near-term prospects. 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. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have decreased 51.7%.
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 17% over this period against the S&P 500’s gain of 20.9%. Notably, the broader sector has rallied 46.6% 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 17.04X compared with the S&P 500’s 23.37X. It is also below the sector’s forward-12-month P/E of 27.86X.
Over the past five years, the industry has traded as high as 17.04X and as low as 9.94X, with the median being at 12.16X, as the charts below show.
Forward 12-Month P/E Ratio
Forward 12-Month P/E Ratio
Bottom Line
Solid momentum in cloud computing, big data, IoT, auto, connected devices, VR and AI, and recovery in NAND flash pricing will continue to drive revenues for the industry participants. However, the industry is currently grappling with coronavirus crisis-induced supply constraints and sluggishness in enterprise IT spending.
Nevertheless, we present three stocks with a Zacks Rank #3 (Hold) that investors may currently keep an eye on.
Irvine, CA-based Netlist, Inc. (NLST - Free Report) designs and manufactures high-performance memory subsystems for the server in high-performance computing and communications markets. It has surged 71.6% in the past year. Notably, the consensus estimates for 2020 bottom line has remained steady at a loss of 4 cents over the past 60 days. The company has a long-term earnings growth rate of 15%.
Price and Consensus: NLST
San Diego, CA-based Teradata Corporation (TDC - Free Report) is a leading provider of hybrid cloud analytics software. It has evolved from an enterprise database company to an enterprise analytics platform provider. The Zacks Consensus Estimate for 2020 earnings has been revised upward by 85.2% to 50 cents per share in the past 30 days. The company has a long-term earnings growth rate of 16.58%.
Price and Consensus: TDC
Dublin, Ireland-based Seagate deals in HDDs, SSDs and solid-state hybrid drives. The Zacks Consensus Estimate for fiscal 2021 earnings has been steady at $4.37 per share in the past seven days. The company has a long-term earnings growth rate of 1.21%.
Price and Consensus: STX
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
Image: Bigstock
Low IT Spend Mars Computer Storage Devices Industry Outlook
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 Pure Storage (PSTG - Free Report) and NetApp (NTAP - 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 provide purpose-built servers, which are utilized for storing and accessing data over a shared network or through the Internet.
Let us take a look at the industry’s four major themes:
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Computer Software is housed within the broader Zacks Computer and Technology Sector. It carries a Zacks Industry Rank #244, which places it in the bottom 3% 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 weak near-term prospects. 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. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have decreased 51.7%.
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 17% over this period against the S&P 500’s gain of 20.9%. Notably, the broader sector has rallied 46.6% 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 17.04X compared with the S&P 500’s 23.37X. It is also below the sector’s forward-12-month P/E of 27.86X.
Over the past five years, the industry has traded as high as 17.04X and as low as 9.94X, with the median being at 12.16X, as the charts below show.
Forward 12-Month P/E Ratio
Forward 12-Month P/E Ratio
Bottom Line
Solid momentum in cloud computing, big data, IoT, auto, connected devices, VR and AI, and recovery in NAND flash pricing will continue to drive revenues for the industry participants. However, the industry is currently grappling with coronavirus crisis-induced supply constraints and sluggishness in enterprise IT spending.
None of the stocks in the Computer-Storage Devices industry currently sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nevertheless, we present three stocks with a Zacks Rank #3 (Hold) that investors may currently keep an eye on.
Irvine, CA-based Netlist, Inc. (NLST - Free Report) designs and manufactures high-performance memory subsystems for the server in high-performance computing and communications markets. It has surged 71.6% in the past year. Notably, the consensus estimates for 2020 bottom line has remained steady at a loss of 4 cents over the past 60 days. The company has a long-term earnings growth rate of 15%.
Price and Consensus: NLST
San Diego, CA-based Teradata Corporation (TDC - Free Report) is a leading provider of hybrid cloud analytics software. It has evolved from an enterprise database company to an enterprise analytics platform provider. The Zacks Consensus Estimate for 2020 earnings has been revised upward by 85.2% to 50 cents per share in the past 30 days. The company has a long-term earnings growth rate of 16.58%.
Price and Consensus: TDC
Dublin, Ireland-based Seagate deals in HDDs, SSDs and solid-state hybrid drives. The Zacks Consensus Estimate for fiscal 2021 earnings has been steady at $4.37 per share in the past seven days. The company has a long-term earnings growth rate of 1.21%.
Price and Consensus: STX
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>