Encouraging trends in PC shipments, and solid momentum in cloud computing, IoT, auto, connected devices, VR and AI necessitate the need for robust data storage solutions required to harness the power of big data.
This has bolstered demand for computer storage products, which favors the prospects of prominent industry players, including NetApp ( NTAP Quick Quote NTAP - Free Report) , Teradata Corporation ( TDC Quick Quote TDC - Free Report) and Super Micro Computer ( SMCI Quick Quote SMCI - Free Report) . Further, democratization of higher internal memory smartphones, faster Internet speed and 5G is likely to act as a tailwind for the industry participants. Moreover, rapid deployment of 5G networking is driving the proliferation of Internet of Things (IoT), Advanced Driver Assistance Systems (ADAS) and Augmented Reality/Virtual Reality (AR/VR) devices. This, in turn, holds promise. Thereby, the outlook for the Zacks Computer-Storage Devices industry appears encouraging at the moment. Nevertheless, lingering impacts of coronavirus pandemic triggered supply chain disruptions remain an overhang. Industry Description
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 Quick Quote PSTG - Free Report) and NetApp, 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. 4 Trends Shaping the Future of the Computer – Storage Industry : Improving trend in PC shipments in 2020, due to coronavirus crisis-induced supply constraints, is likely to positively impact business prospects of the industry participants. This is because demand for HDDs in manufacturing PCs is the highest and companies in this industry, including Uptick in PC Shipments to Bolster Growth Prospects Seagate ( STX Quick Quote STX - Free Report) and Western Digital ( WDC Quick Quote WDC - Free Report) , derive bulk of their revenues from the sale of such devices. Per the latest IDC report, PC shipments in fourth-quarter 2020 increased 26.1% year over year to 91.6 million units. Going by the report, shipments in 2020 were up 13.1% over 2019, and totaled 302.6 million in the period. Moreover, improving NAND flash pricing trends owing to COVID-induced supply chain constraints is a tailwind. : 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 and internal memory in advanced smartphones. Moreover, the accelerated deployment of 5G and rebound in smartphone market is likely to propel the industry to newer heights. Furthermore, 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. Also, stay-at-home trends are likely to bolster sales of gaming SSDs. Additionally, increasing utilization of surveillance and drones amid the coronavirus outbreak is anticipated to favor adoption of storage products, which bodes well for the industry participants. New Normal Trends & Rapid Implementation of 5G Opening New Business Avenues : 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, the 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 amassed from IoT, companies are turning to edge computing architecture to reduce latency and boost flexibility. Notably, 49% of the 175 ZB data produced in 2025 is Innovation in Cloud Storage Technologies to Drive Adoption projected to be stored in the cloud. In addition, Kubernetes storage is becoming increasingly popular as it facilitates greater agility and scalability. This, in turn, has bolstered deployment of high-capacity mass storage products, which is a positive for the industry players. : 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 Coronavirus Crisis Induced Sluggish IT Spend to Hinder Growth slowdown in enterprise IT spending as estimated by IDC, amid coronavirus crisis-led economic downturn, remains a major concern. Moreover, remote working amid social distancing norms and shelter-in-place restrictions, owing to the ongoing pandemic, has severely impacted enterprise hardware demand. 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. 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 #87, which places it in the top 34% 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 gaining confidence in this group’s earnings growth potential. Since Aug 31, 2020, the industry’s earnings estimate for 2021 has improved 8.2%. Before we present a few stocks that you may want to consider for your portfolio, considering bright prospects, let us 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 7.6% over this period against the S&P 500’s gain of 18.4%. Notably, the broader sector has rallied 36.5% in same time frame. One-Year Price Performance Industry’s Current Valuation
On the basis of forward 12-month P/E (or Price/Earnings), which is a commonly used multiple for valuing computer storage devices companies, we see that the industry is currently trading at 15.79X compared with the S&P 500’s 23.37X. It is also below the sector’s forward-12-month P/E of 28.83X.
Over the past five years, the industry has traded as high as 18.49X and as low as 9.94X, with the median being at 12.85X, as the charts below show. Forward 12-Month P/E Ratio Forward 12-Month P/E Ratio 3 Computer-Storage Devices Stocks to Keep a Close Eye on NetApp is benefiting from strength in all-flash business, and Public Cloud Services. The company is also gaining from growing clout of cloud-integrated all-flash solutions; File, Block and Object Software products; and hybrid multi-cloud offerings. Moreover, recent acquisitions of Spot, Cloud Jumper and Talon Storage have been immediately accretive to revenues, and are likely to act as key catalysts for this Zacks Rank #1 (Strong Buy) company. You can see . the complete list of today’s Zacks #1 Rank stocks here Notably, shares of NetApp have gained 1.7% in the past year. The Zacks Consensus Estimate for fiscal 2021 earnings for the company has improved by 14.4% to $3.90 per share over the past 60 days. This reflects on bullish sentiments for the stock. Moreover, its long-term earnings growth rate is pegged at 11.9%. Price and Consensus: NTAP Teradata Corporation is a leading provider of hybrid cloud analytics software. It has evolved from an enterprise database company to an enterprise analytics platform provider. The company’s efforts to expand features of Vantage, both on premise and cloud, are noteworthy. Further, it generates significant revenues from sectors like financial services, government, and healthcare, which remain stable despite the coronavirus crisis. This, in turn, provides a boost to Teradata’s top line. Completion of its transition to a subscription-based business model is expected to favor recurring revenues. The latest Vantage update on Amazon Web Services, Azure and Google Cloud and an expanding partner base are positives for this Zacks Rank #3 (Hold) company. Although shares of Teradata Corporation have declined 12.4% in the past year, a long-term earnings growth rate of 16.09% highlights its prospects. The Zacks Consensus Estimate for 2021 earnings has been steady over the past seven days at $1.55 per share. Price and Consensus: TDC Super Micro Computer is poised to gain from strength in its hardware offerings across growth verticals, including the server market, primarily hyperconverged infrastructure systems, all-flash storage, 5G infrastructure, and servers designed to handle complex AI, HPC and edge computing workloads. Growing clout of its products across cloud service providers, hold promise for this Zacks Rank #3 company. Also, increasing prominence of return-to-work trends as vaccines get democratized are expected to lift enterprise hardware demand, which in turn, favors growth prospects. The Zacks Consensus Estimate for fiscal 2021 earnings has been steady at $2.27 per share in the past seven days. Notably, shares of Super Micro Computer have appreciated 12.6% in the past year. The Zacks Consensus Estimate for fiscal 2021 earnings for the company has remained steady at $2.27 per share over the past seven days. Price and Consensus: SMCI