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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (52113)	8/14/2013 5:03:08 PM
From: IndependentValue	Read Replies (2) \| Respond to of 78748

Jurgis, Thanks for your comments; couple of points I would make in response: You said: And I say that $64M question is whether you are right about positive growth outlook and whether the last 10 years is repeatable in any shape or form. Regarding the data/digital content growth outlook in general, an IDC study from 2012 stated that from now until 2020, the digital universe will about double every two years, which is a CAGR of c. 40% and that within the Big Data space, the enterprise storage market is expected to grow at a CAGR of 53% until 2016. WDC’s $2 billion of goodwill that I mentioned previously relates to their acquisition (at just 3x-4x EBITDA I might add) of Hitachi’s hard disk business, which was formerly IBM’s hard disk business – what is the significance of this? IBM still use Hitachi hard drives in the storage arrays that they sell to – wait for it – the Pentagon, NSA and CIA. Do I think demand in this shadowy end of the market will continue to grow? Absolutely. More generally, there are only a handful of companies that will leverage themselves to the continued growth in digital content anyway, largely because with the exception of the SSD/flash/NAND end of the data storage market, the industry has more or less consolidated into a handful of dominant players that serve different aspects of the end-user’s demand criteria; IBM, HP, EMC pretty much are the dominant big data storage solutions providers, but they don’t manufacture the hard drives used in their array (WDC and STX do), while at the newer end of the market for SSD and flash, with the exception of Samsung and Toshiba, most players are sub- $1 billion or perhaps even $500 million mkt cap companies that could be taken out by the bigger HDD players (again WDC and STX). Moreover, WDC has a nascent SSD business which will grow, as SSD in perceived as a much longer term replacement for HDDs (although I believe the significance of this argument is overstated and is responsible for part of the persistent undervaluation of WDC anyway). Contrary to your suggestion, I do not at all think my 3-4 months of in depth due diligence on WDC has produced a poor ROI. I now have a pretty reasonable understanding of a secular industry – data storage is not going to go away, with every minute that passes, new data is created and so I think it’s an industry worth understanding for the long-term. I may not be invested yet, but who is to say that I won’t be once the price is right – I certainly feel I am equipped to make an intelligent investment decision based on sound understanding of the business, should the opportunity to do so arise. Remember, you cannot value a business unless you truly understand it. For now, my ROI of time spend analysing WDC is a solid understanding of a business that is worth keeping an eye and waiting for the proverbial fat pitch. Glad to hear you own WDC – I really think it’s an excellent business in a tough industry; I wish I owned it at the prices you most likely got in at!