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Why Have Seagate and Western Digital Had Such a Tough 2016?

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Nov. 20 2020, Updated 11:21 a.m. ET

Mizuho’s lowered target price for Seagate

The share prices of Seagate Technology (STX) and Western Digital (WDC) fell significantly when Seagate lowered its fiscal 3Q16 guidance. It happened again when Seagate announced its fiscal 3Q16 results on April 29.

Seagate’s shares fell by 13% in the week ending January 22, 2016, after the investment company Mizuho cut its price target for the company from $38 to $32 and provided a “neutral” rating on the stock.

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Meanwhile, SanDisk’s (SNDK) shares fell by 9.9%, whereas shares of Western Digital fell by 9.1% in the week ending January 22. Shares of WDC have fallen by over 45% in the past six months, after it agreed to buy SanDisk in yet another big deal in the semiconductor space on October 21, 2015. Shares of Seagate have also fallen by over 35% since the merger announcement.

The global HDD market

Western Digital and Seagate account for 80% of the global HDD (hard disk drive) market. In the past few years, the HDD market has shrunk, whereas the SSD (solid state drive) market has expanded.

Western Digital has also acquired Hitachi’s hard drive business. Hitachi is a major player in Japan’s (EWJ) technology sector, and now Western Digital is projected to account for 14% of the SSD market after its proposed merger with SanDisk, which would make it the second-largest player in this space after Samsung Electronics (SSNLF).

Falling prices of storage products

As you can see in the above table, SSD and HDD prices have been falling, and they’re expected to continue to fall in coming years. These falling prices have increased the adoption of SSDs in laptops.

DRAMeXchange Senior Manager Alan Chen expects the SSD adoption rate in new consumer laptops to rise from an estimated 26% in 2015 to 42% in 2017.

In the next and final part of this series, we’ll check in with what analysts have to say about Seagate after its fiscal 3Q16 results.

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