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Earnings Season: Will Seagate’s Loss Be Western Digital’s Win?

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Seagate misses sales

In the previous part of this series, we saw that Seagate Technology (STX) lowered its fiscal Q16 earnings guidance due to lower-than-expected demand for its new data storage products. The company’s chief executive officer’s comments on the disappointed product portfolio raised the question of whether weaker demand was industry-wide or only affected Seagate.

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Western Digital versus Seagate

Western Digital (WDC) and Seagate have cutthroat competition in the HDD (hard disk drive) space, with the former accounting for a 43.6% share and the latter for a 40.1% share in 1Q15, according to Gartner. If Seagate misses out on any sales, it would be a win for WDC. Toshiba (TOSBF) is another key player in the HDD market with a 16% share.

Let’s look at Seagate chairman and CEO Steve Luczo’s comment, “We are disappointed we did not execute a product portfolio that fully addressed the demand in the nearline market. Looking ahead, we are confident that our nearline product portfolio will be fully competitive by our fiscal third quarter.”

The above comment looks like a warning that Seagate has lost market share to Western Digital, according to RBC Capital Markets analyst Amit Daryanani. To add to this concern, Seagate expects to become “fully competitive” by the quarter ending March 31, 2016, giving WDC ample of time to take more market share.

However, Seagate, in its press release, stated that it expects to maintain its market share of approximately 40% by shipping around 47 million units in fiscal 1Q16.

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Western Digital’s growth strategy

While Seagate is struggling to keep its sales up, WDC is looking to expand in SSD (solid-state drive). WDC is rumored to be in talks with SanDisk (SNDK) over a possible acquisition.

HDD–SSD market outlook

The slowdown in personal computer shipments and increased adoption of flash storage had been affecting HDD sales. IDC research vice president for hard disk drives John Rydning anticipates that the demand for HDDs will shift from PCs to enterprises, with the latter accounting for over 40% of the industry’s revenue by 2018.

You can invest in Seagate through PowerShares QQQ (QQQ), which has 0.27% exposure in the company’s stock.

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