Seagate Vs Western Digital Stock: Which Is Best?

Storage is where it’s at. All those devices people love to use, companies that leverage the cloud, people who love to shop online, and the Internet of Things (IoT) generate tons of data – and it all has to go somewhere or be lost to the void. Hard disk drives (HDDs) are behind all of it. They store information even when they are not being actively powered.

Pros and Cons of Hard Disk Drive Manufacturers

While it might look like HDDs are going the way of the dinosaur in favor of Solid State Drives (SSDs), that’s mostly in consumer computing.

Data centers are still very much in the HDD market and they could be for a while to come. “The primary concerns for data centre storage are reliability, storage density, and cost,” explains Backblaze. “While SSDs are strong in the first two areas, it’s the third where they are not yet competitive.”

Businesses that have high-capacity storage needs are forced to stick with HDDs, which are significantly cheaper. “Simply put,” continues Backblaze, “SSDs are not yet in the price range to make their use economical for the benefits they provide, which is the reason why we expect to be using HDDs as our primary storage media for the foreseeable future.”

However, the rise of SSDs are changing things for HDDs manufacturers. Whereas many of them once produced hard disk drives for both consumers and industrial clients, the market is indeed shifting.

Let’s look at two companies with varying approaches to the HDD/SSD issue: Western Digital (NASDAQ: WDC) and Seagate Technologies (NASDAQ: STX).

Is Seagate Technology Stock Worth Buying?

Seagate has been keeping its focus all HDD and the demand has been there. “HDD exabyte shipments for the December quarter were a record 87.5 exabytes, up 28% year over year,” said David H. Morton, Executive Vice President and CFO in a discussion about 2Q18. “The average capacity per drive across the HDD portfolio was also a record 2.2 terabytes per drive, up 29% year over year, and the average selling price per unit was $68.00, up 3% year over year.”

The company has also been trying to increase profit margins while keeping price competitive.

In 2006, Seagate acquired manufacturer Maxtor, a move that helped the disk-drive maker to become more vertically integrated. It was criticized for “cannibalizing” Maxtor, but this consolidation has helped the company cut costs as it continues on its HDD strategy.

Morton has said that Seagate has a “broad-offering of flash-based products that are ready to scale and grow across multiple markets” and that “diversifying and expanding our competitive HDD mass storage portfolio with SSD and enterprise storage solutions will enable meaningful future revenue growth and profits over the next several years.”

However, the company is not really in the SSD market. Instead, it outsources those memory components, largely from Toshiba.

It could be consolidating there too. “Looking ahead, we continue to be bullish about our opportunities to leverage our long-term NAND supply agreement with Toshiba Memory Corporation for significant revenue growth and expanding margin contributions of our silicon product portfolio and SAS, SSD, PCIe, NBMe, consumer, and gaming markets,” said CEO Dave Mosley in the 2Q18 earnings conference call. “This value creation is above and beyond the base economics previously disclosed with our equity commandment letter for Seagate to invest up to $1.25 billion with the Bain-led consortium acquisition of the Toshiba Memory Corporation.”

Seagate also invested in blockchain technology through technology company Ripple, so it could have better diversification going forward.

Right now, Seagate is trading at $43.60 or roughly 7.37 times its future earnings.

Is Western Digital Stock Worth Buying?

Western Digital is taking a completely different approach than Seagate. Whereas that company is keeping its focus on HDDs, Western Digital is branching out.

“It is time for the notebook OEMs to hear the customer voice and create winning solutions with SSDs” – That was what Rene Harter, VP of Corporate Business Development at Western Digital’s SanDisk, said in “The Truth About SSDs,” an article published in 2015. Western Digital has been putting its money where its mouth is ever since.

In 2016, the company acquired data storage solution company SanDisk for $19 billion, retaining it as a subsidiary.

The next year, Western Digital also invested in cloud computing information management company Upthere and Tegile Systems, a flash storage company.

More importantly, Western Digital has not even started to reap the benefits of its SanDisk acquisition. That’s expected to start in 2019.

The company is also paying down its debt. All in all, Western Digital is in a position to be very attractive in a few years.

Right now, the company is priced low enough that it could be a good time to open a position. It is trading at less than 5 times its future earnings.

Western Digital Vs Seagate Technology Stock Summary

Western Digital is more diversified than Seagate, and that could be a strong point if you don’t believe that HDD is where it’s at for the near future. The stock is also priced low relative to earnings and to Seagate.

If SSDs do start to take over HDDs on an enterprise scale, Seagate may be out of luck unless the Toshiba deal goes through and it can acquire the technology and expertise.

There is also a chance that Ripple could save Seagate if storage shifts from SSDs to blockchain. It’s an ambitious move but it could turn out to be a well-planned one. After all, Seagate looked to vertical integration when SSDs were first gaining popularity. Getting involved with blockchain at this stage in the game could be another instance of solid foresight – but it is still a gamble. Most analysts list Seagate as a Hold position