Western Digital (WDC, Financial) posted good results for the recently reported quarter. The company is pleased with the momentum it is seeing in its business. Looking ahead, Western thinks that demand for its products will improve in the coming quarters.
The way ahead
Looking ahead, Western Digital is seeing good opportunity from its capacity enterprise and flash platform solutions businesses. Also, with the growth of a strong client base the company is expanding its line-up of enterprise SSDs. However, Western is quite worried about the decline in the demand in the upcoming December quarter but on the other hand it is pleased to see good growth in the capacity enterprise which is expected to offset the negative effects of the anticipated weakness in the demand.
As with the growing confidentiality in the business, the customers are more interested in the facts that how the data is stored, accessed, protected and used. With all such concerns among the customers, Western Digital is seeing good opportunities for it in the space. The company is working aggressively with its customers and partners for extracting more and more value from the data in a most suitable and cost effective manner.
New products in focus
Western’s new products from its pipeline are seeing good response by the customers in the market. its recently announced 8TB and 10TB models are gaining good traction. It is also having a broad line up of high capacity storage hard drives which are based on HealioSeal platform. Western is seeing good demand for it across its traditional enterprise and hyperscale datacentre customers.
In addition, there is a growing demand for high resolution recording from government and large organizations as they are much more involved in the use of video and digital network cameras these days. The company is pleased to see such opportunities; and in fact it has already shipped around 1 million WD purple hard drive architecture to address this high growth in demand.
Moving to the enterprise business, Western Digital has launched Active Archive offering which is seeing a better-than-expected response by the customers. Moreover, in the personal Cloud space, too, Western is making efforts to grow its My Cloud business in various consumer and pro-consumer markets.
Conclusion
With a trailing P/E of 16.23, the stock looks cheap and reasonable and with the forward P/E of 11.24 Western Digital is showing good earnings improvement as well. But its long term earnings growth might be disappointing for some investors as its earnings are growing with a CAGR of just 6.67% for the next five years which is lower than the industry average of 15.34%. Considering all these facts and valuation levels, I would like to suggest investors to add Western Digital to their portfolio.
