Hi Jurgis,
Thanks for your response.
In relation the risks you highlight, I agree that they are all valid, but somewhat mitigated by the following:
SSD conversion remains economically impractical due to the cost differential vs. HDD as you point out. However, the perception that all HDD needs to be replaced with SSD because SSD is the newer technology is somewhat misguided IMO; SSD is higher performance with faster write times etc, but not all data needs to be accessed or stored on such a medium; for most data that people use/access every day, HDD medium is more than adequate; secondly, the new hybrid drives being produced seem to adequately address this client need at a better cost than pure SSD
While I agree that mobile/smart computing devices are displacing traditional PC formats (desk and lap-top), that data stored remotely remains the same in nature; where once it was stored in a magnetic disk in a PC, it will now be stored on a magnetic disk in an enterprise cloud server; I believe that WDC will still benefit from this trend
Regarding deworsification and SSD transitioning for WDC, WDC is a cash-flow near monopoly is the HDD business (which isn’t going away) so it has the scale and resources to cherry pick SSD businesses to augment its own nascent SSD offering. Its SSD acquisitions to date I believe demonstrate that management are following an intelligent and prudent capital allocation strategy as it acquires appropriate SSD assets to help it transition from traditional HDD to HDD/SSD. Also note its JV with SanDisk – management appear to recognise that its not just a matter of leaping from “old HDD” to “new SSD” in one fell swoop – there is a transitionary, intermediate opportunity: the hybrid combo drives that economically and performance wise provide an appropriate solution. Also the amounts invested in VeloBit, Skyera, sTec (pure SSD investments) are relatively immaterial to WDC;s cash balance and ongoing FCF generation, so I don’t see a cash down the drain scenario.
Finally, I can’t see why clients would stop buying HDDs to the point where WDC will lose over 50% sales – care to elaborate on this point, I’m not sure I follow you on that? Are you referring to Dell etc.?
I’ve studied WDC for over a year and am kicking myself that I didn’t invest (was getting married and didn’t have the funds to make a meaningful investment!).
Independent Value. |
