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Updated Research Report on Western Digital

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On Feb 28, 2014, we issued an updated research report on Western Digital (WDC - Free Report) . Despite reporting better-than-expected second-quarter results, the company expects a sequential decline in revenues due to lower total addressable market (TAM) impacted by seasonality. Moreover, the company’s earnings estimates are expected to be affected due to the sTec and Virident acquisitions.

Nonetheless, Western Digital shipped 63.1 million hard drives at an average selling price (ASP) of $61.0. Reported shipment was up from 62.6 million sequentially and 59.2 million in the year-ago quarter. Moreover, Western Digital’s shift toward non-PC applications continued as 34% of the quarter’s revenues came from the segment during the last reported quarter.

We believe the secular growth of digital data and growing exposure to the small and medium business space are the long-term positives. The company is launching storage devices to attract more customers.

Moreover, the company is expected to get good mileage from its cloud-based business. Cloud-based storage has become the order of the day as it enables the access of content through different gadgets such as smartphone, tablets and personal computers.

To cater to this pent up demand, the company expanded its My Cloud solutions with My Cloud EX4 — a broader portfolio of network attached storage hard drives. My Cloud EX4 will help the company meet growing business needs with improved flexibility and security.

Moreover, strategic acquisitions to expand its offerings in the SSD segment is expected to place Western Digital in a better position compared to its peers such as Seagate (STX - Free Report) and SanDisk Corp. . However, continued investments in product innovation could result in flattish margins in the near term.

Also, Western Digital witnessed lower estimate revisions for the March quarter over the last 60 days. During the period, Western Digital’s earnings estimate dropped from $1.91 to $1.88.

Currently, Western Digital has a Zacks Rank #3 (Hold). Investors can consider a better-ranked stock like Juniper Networks (JNPR - Free Report) which sports a Zacks Rank #1 (Strong Buy).

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