Western Digital Seems Extremely Cheap

[dcollon]

Interesting comments.  Thanks for posting the article.

[MrB]

Anyone care to add reasons to why this stock should be shorted/bear case?

 

1. SSD threat

2. HDD price erosion

3. Risk from patent law suits. Case in point; $630m arbitration award that was recently vacated. More of those?

4. Taxes. Extremely low (6%-10%) tax rate is somewhat of a mirage, because those taxes need to be paid if funds are repatriated to the US. They just started paying a dividend and announced a significant buyback program. So more taxes will be paid on historical profits.

5. Share option programs are very aggressive. Current outstanding of 22m on 230m SO and recently asked and got approval for another 20m

6. Vertically integrated industry consisting of a duopoly, which makes it vulnerable to supply chain shocks.

 

 

What else would you add to the bear case?

[Palantir]

Both Seagate and Western Digital had bumper years ending June 12 in terms of cash flow and have continued strongly this quarter....any insight as to why?

[Myth465]

I had a very small buy order in for Monday or Tuesday and it gaped up 7%.....

 

Bumper year inmo likely due to consolidation, Thai flooding, and continued growth in storage demand due to social media / the cloud.

 

[MrB]

Both Seagate and Western Digital had bumper years ending June 12 in terms of cash flow and have continued strongly this quarter....any insight as to why?

 

The bears and sell side say it is because of the extraordinary contraction in HDD supply due to the Thai floods and earthquake in Japan. The latter lead to disruption in the supply chain to the HDD manufacturers. Also, due to the disruptions OEMs and just about everyone else overstocked due to the fear of not being able to get your hands on HDD. That lead to a significant spike in pricing in particular, but also more volume than would have been the case. They say the party is now over and we will return to the slide in prices.

 

I think what the market might be missing is exactly what management of both STX and WDC have been saying all along. Things have changed and they have indeed. Over the last 18 months the industry finally consolidated into a duopoly with roughly 43% (WDC) 40% (STX) and 17% Toshiba; I'm obviously implying Toshiba is not playing a significant role. Both managements make it clear that 30% gross margins are hear to stay.

 

WDC CFO 5 Dec "And we finished the year with $2 billion -- approximately $2 billion in free cash flow. It was an incredibly agile company that has also expanded gross margin from 15% ten years ago to approximately 30% right now....And the one that I want to point out is an increase of our gross margin model to 27% to 32%. Significant increase was at the prior model, approximately half of it was driven just by the HGST acquisition and rounding out the product portfolio. We feel comfortable that we can live in this model. It's not an aspirational model. It's something that we manage ourselves to. Many people ask us "Can you hold this model in this market where everything really speaks against you from a macro perspective?". I want to point out that we are in the third quarter of supply being greater or capacity I should say being greater than demand, and we are in the model. So, it's not an aspirational model. 27% to 32% quite frankly is what we need to earn in order to achieve our return on equity and return on capital targets"

 

STX CFO 4 Dec "Interesting thing in the September Analyst Day -- both the large players had an Analyst Day that both their financial models were very, very similar.

I think we talked about gross margins, long term, 27, 32. We talked about a range of capital deployment of anywhere from the 4% to 8% of revenue

dollars of capital. We also talked about how we return our capital to shareholders' excess cash flow while we're making the appropriate investments in R&D and other technical adjacencies."

STX CFO 14 Nov "Well, I think it -- the question is, why would the pricing stay at these elevated levels for post-flood? Well, one, I think there's a couple of different reasons. One, I would say they're -- they may be elevated, or you could take the position that pre-floods, they were -- had gotten too long in the tooth going too low. So I think there was a rebalancing of it to get into the supply and demand, number one. And number two, once we're up there, if we have to deploy the capital to sort of make these investments -- because our business is not about backlog. Our business is not about having someone else share the risk with us. When we open a media factory, when we decide to build or deploy that capital, that's the risk capital we take in place. And so, if you take a look at the size of the storage is still yet to come, you say you need those levels to make that investment. Because if it does go down there, you'd have to come to the thesis that, okay, who's going to deploy that capital then? And then you get back into the shortage and then you'd have price rises again.

So, by keeping a flatter pricing structure, you can make those investments. So, I think the industry will -- can determine that. I mean, where there's three players now, we can determine it because we all have to deploy that risk capital. No one's getting a freebie that someone else deploys that capital for them. In order to make those investments, you need to have these -- this margin structure.

 

I think the market is missing the fact that what you see through the windscreen is a totally different picture to what you see through the rear view mirror.

[MrB]

I had a very small buy order in for Monday or Tuesday and it gaped up 7%.....

 

Bumper year inmo likely due to consolidation, Thai flooding, and continued growth in storage demand due to social media / the cloud.

 

Myth..so how about 10 consecutive "small buy orders" please? Should get us some way to where we need the price to go  ;)

[ItsAValueTrap]

A: Any analyst who is worrying about that fundamentally doesn’t understand the industry. Flash is a complimentary technology, it’s not a competitive technology.

It seems like the CEO is trying to talk up his company.

 

To me, it is very obvious that the mix in storage between flash and hard drives is moving towards a higher % of flash.  I'm not smart enough to know what the ultimate percentage will be, but I think that hard drives will always have some share of the overall market.

 

In laptops/ultrabooks (e.g. Macbook Air), there are clearly a lot of consumers who are buying a laptop that only contains a flash drive.  This trend will increase slightly.

 

In enterprise markets, storage will likely be a hybrid of flash and traditional hard drives.  Flash storage allows for many IOPS whereas hard drives have the advantage of storage/$.  I think there will be a lot less high speed hard drives as hybrid flash solutions would offer better IOPS/$.

 

2- Historically, computing has been in an incredible secular bull market but many segments of it haven't made that much money at all.

 

Look at IBM... it has gotten out of memory manufacturing, making consumer PCs, and making hard drives.  These aren't high-ROE areas of the overall computing market.  IBM is probably one of the smartest players in the computer industry as it has transformed itself from a dying mainframe company to a software/services/integration company.

 

Intel is getting out of making flash memory (and it got out of making memory a long time ago).

 

Berkshire Hathaway companies in the computer industry would be IBM, Microsoft, Intel, etc.  (It currently only owns IBM.) 

 

2b- Of course, flash storage could turn the hard drive industry into a slowly-declining industry.  It's really hard to make money in a tough business.

 

I think that 10/20 years from now, IBM/Microsoft/Intel will make a lot more money for shareholders than Western Digital and Seagate.

 

*Long Intel, so I am biased.

[Palantir]

Great info all....will need to meditate on this.....this seems to be parallel Intel's competitive issues - weak/cool hardware goes on mobile devices, strong/hot hardware goes inside datacenters....

[hyten1]

just a quick comment (too lazy to write a long post), but some things to think about

 

- ItsAValueTrap - everything you wrote is known, nothing new, they are comment thoughts and thinking that is almost part of the investment consciousness. Not saying they are not right. But its things like this that make me think, is the common thoughts incorrect if so then we got a good opportunity here.

 

- think of railroads, railroad for the longest time was a bad business, dieing, no one want it, it was left for dead, until the fundamental nature of the business change, people who notice it early made a killing, WEB notice it, a little later than some. not saying the HD/storage space is exactly the same senario, but it the first analogy i can come up with.

 

- now is WDC/STX a harddrive company or storage company? now if they are harddrive company i would walk away immediately.

 

- fundamentally storage is here to stay, someone/some company will provide storage, the storage might be in the form of HD, solid state, or whatever.... the key is be dominate as THE STORAGE company.

 

- now, is WDC/STX a storage or HD company? If so why, if not why not.

 

hy

 

 

[hyten1]

just a quick comment (too lazy to write a long post), but some things to think about

 

- ItsAValueTrap - everything you wrote is known, nothing new, they are common thoughts and thinking that is almost part of the investment consciousness. Not saying they are not right. But its things like this that make me think, is the common thoughts incorrect if so then we got a good opportunity here.

 

- think of railroads, railroad for the longest time was a bad business, dieing, no one want it, it was left for dead, until the fundamental nature of the business change, people who notice it early made a killing, WEB notice it, a little later than some. not saying the HD/storage space is exactly the same senario, but it the first analogy i can come up with.

 

- now is WDC/STX a harddrive company or storage company? now if they are harddrive company i would walk away immediately.

 

- fundamentally storage is here to stay, someone/some company will provide storage, the storage might be in the form of HD, solid state, or whatever.... the key is be dominate as THE STORAGE company.

 

- now, is WDC/STX a storage or HD company? If so why, if not why not.

 

hy

[meiroy]

 

Wow, so to make money off this company one has to figure out where the HDD/Flash/whatever technology will be in a couple of years? I rather poke myself in the eye.

 

[hyten1]

meiroy

 

i don't think you necessarily need to know what the technology will be, considering:

 

- storage tech don't change overnight (scale, suppliers, install base, etc etc)

- valuation of STX and WDC

- hd/storage tech/business has been through a lot, and has come long way

- fundamentally you need storage there are only a handfull or players (now sure new tech can come along, refer to point #1)

 

not saying wdc etc is perfect or the best investment (i am still researching) but this narrative of SSD is going to kill HD has been talk about for so long, doesn't mean it can't happen soon, but i don't see it happening anything soon

 

also its not like WDC has been tunnel vision and just focus being a "hard drive company", WDC sells lots of SSD products as well as hybrids.

 

also look at the valuation at some point all the worries above are less of a worry.

 

hy

 

hy

[oddballstocks]

A: Any analyst who is worrying about that fundamentally doesn’t understand the industry. Flash is a complimentary technology, it’s not a competitive technology.

It seems like the CEO is trying to talk up his company.

 

To me, it is very obvious that the mix in storage between flash and hard drives is moving towards a higher % of flash.  I'm not smart enough to know what the ultimate percentage will be, but I think that hard drives will always have some share of the overall market.

 

In laptops/ultrabooks (e.g. Macbook Air), there are clearly a lot of consumers who are buying a laptop that only contains a flash drive.  This trend will increase slightly.

 

In enterprise markets, storage will likely be a hybrid of flash and traditional hard drives.  Flash storage allows for many IOPS whereas hard drives have the advantage of storage/$.  I think there will be a lot less high speed hard drives as hybrid flash solutions would offer better IOPS/$.

 

 

 

The problem is longevity.  A flash drive doesn't last as long as a physical hard drive, not because of manufacturing techniques but due to the physical limitations of the device.  A flash memory location can only be written and over written so many times before the cell won't hold a charge.  This is good for flash manufacturers because people will need to replace their drives quicker as they fail.  What this also means is that until this problem can be overcome flash will never make an appearance in datacenters.

 

I could see a hybrid where some information that's more static is stored on flash with swap on a physical disk.  The problem is the speeds are so different you don't get the flash benefit the second you hit the physical disk, especially a laptop version.  Most laptops still run hard drives at 5400 rpm, whereas a desktop drive at 15000 rpm isn't uncommon.  The difference in rpm equals the amount of time it takes for the disk to physically spin to the location that the data exists.

[meiroy]

 

hyten1,

 

You'd categorize it as cigar butt, turnaround, what?

 

[ItsAValueTrap]

A minor point to consider is that flash technology will have trouble continuing its rapid increases in capacity and performance.  Shrinking the size of the transistors will start running into some big problems in the next several years.

 

this narrative of SSD is going to kill HD has been talk about for so long, doesn't mean it can't happen soon, but i don't see it happening anything soon

Technology changes can happen very very quickly.

 

Software... look at ICQ and Myspace.

Smartphones... look at RIMM and its stock price (or market share or free cash flow).

 

Storage... look at the Jaz drive.  USB thumb drives and mp3 players have killed a lot of demand for CDs and floppy discs.

 

I think it's perfectly reasonable to expect the current trend of more flash to continue for the next few years.

[ItsAValueTrap]

What this also means is that until this problem can be overcome flash will never make an appearance in datacenters.

Flash is rapidly growing in datacenters.  People have figured out how to overcome that problem (to some degree).  It is already selling right now.

 

Here is a great blog on the high-end storage industry:

http://storagemojo.com/

 

Unfortunately, I couldn't figure out who the winners will be.

 

Most laptops still run hard drives at 5400 rpm, whereas a desktop drive at 15000 rpm isn't uncommon.

A desktop drive at 15k rpm would be extremely uncommon.  The Western Digital raptor runs at 10k rpm versus 7200rpm (and 5400rpm) of mainstream hard drives.  I don't know of any products targeted at the desktop market that is faster.

 

I think that flash will clearly kill off most demand for high-rpm hard drives.

[ItsAValueTrap]

- fundamentally storage is here to stay, someone/some company will provide storage, the storage might be in the form of HD, solid state, or whatever.... the key is be dominate as THE STORAGE company.

There are different segments of the storage industry.

 

Companies like EMC and Netapp that do enterprise storage are increasingly becoming software companies.  (With some services and integration... because their products are complicated.)  I think that this segment of storage will be an area of a lot of value creation.  Dell paid a ridiculous P/E multiple for Compellent. 

 

There are companies that make flash hard drive controllers (e.g. Sandforce).  These chips will become increasingly complicated as time goes on (in the future, they will have to do a lot more error correction).  There may be some unusual value creation here... though I don't know who the winner will be.

 

There are companies that slap parts together, e.g. OCZ.  I don't think that this is a great industry.

 

There are companies that make the parts that go into a hard drive... e.g. Hutchison Technology.  Not a great industry.

[hyten1]

honestly i am no storage tech expert, that is why so far WDC/STX will never be a big part of my positions

 

i think wdc/stx is misunderstood/underestimated (or another way people overestimate ssd that is going to take over the world and leave wdc/stx dead)

 

i don't see HDD goin away anytime soon, does anyone? soon meaning with next 5 years. also the best tech doesn't always win, also its not like wdc/stx are sitting still, the longer it takes SSD to catch on the better not only because wdc/stx can continue to make more money with hdd like tech, wdc/stx have time to improve/perfect/compete

 

we all know ssd is here and coming, with that in mind, how much are you willing to pay for wdc considering.

 

note they made almost 2bil over the past 12 months (sure thailand flood etc help). even if they make 500mil or 1bil a year, how much is that worth and for how long.

 

also note, the same management has been with wdc for a long time, they went though the HDD consolidation/other new tech/products/competitors etc etc.

 

i typically like to buy around $20 :) i still have a small position since i bought it last around $20

 

still researching/watching

 

 

 

 

[hyten1]

lets say SSD dominates 100% of market (which i seriously doubt)

 

you guys think WDC/STX will go to ZERO?

 

I am sure WDC/STX will be in that mix, i highly doubt its ZERO

 

i am fairly confident of it because:

1) SSD is taking a long time to come a long to improve, etc

2) HDD is improving

3) WDC/STX both already have SSD tech and products

 

hy

 

[MrB]

OK I APPRECIATE ALL THE FEEDBACK. HOWEVER, CAN WE PLEASE SET THE STANDARD HIGH FOR THIS THREAD. SO WHENEVER YOU SAY SOMETHING BACK IT UP WITH FACTS OR GIVE ME SOMETHING SOLID I CAN RESPOND TO.

 

THE REASON I SAY THAT IS BECAUSE A NUMBER OF THE ISSUES YOU RAISED ARE EXACTLY THE ONES WHICH I INITIALLY THOUGHT JUSTIFY THIS IDEA NOT DESERVING FIVE MINUTES OF MY TIME. HOWEVER, THE MORE I SEARCHED OUT THE FACTS THE MORE I REALISED I MIGHT BE PLAIN WRONG AND SO MIGHT MOST PEOPLE OUT THERE WHICH MIGHT BE THROWING AWAY THE STOCK

 

FINALLY. WHEN YOU RAISE ISSUES, WHICH I STRONGLY ENCOURAGE, PLEASE GIVE ME HANDLES TO GRIP ON SO I CAN BUILD AN ANALYSIS AROUND IT. MAKE SPECIFIC POINTS I CAN RESPOND TO, DON'T JUST DO A BRAIN DUMP

[MrB]

A: Any analyst who is worrying about that fundamentally doesn’t understand the industry. Flash is a complimentary technology, it’s not a competitive technology.

It seems like the CEO is trying to talk up his company.

 

Thanks for the feedback. What do you mean by "that".

 

To me, it is very obvious that the mix in storage between flash and hard drives is moving towards a higher % of flash.  I'm not smart enough to know what the ultimate percentage will be, but I think that hard drives will always have some share of the overall market.

 

In laptops/ultrabooks (e.g. Macbook Air), there are clearly a lot of consumers who are buying a laptop that only contains a flash drive.  This trend will increase slightly.

 

In enterprise markets, storage will likely be a hybrid of flash and traditional hard drives.  Flash storage allows for many IOPS whereas hard drives have the advantage of storage/$.  I think there will be a lot less high speed hard drives as hybrid flash solutions would offer better IOPS/$.

 

I agree. This transition does not automatically spell the death of STX/WDC, because

 

a. The adoption cycle for SSD will take a long time. Remember if we are talking a PE of less than 5 on next year's earnings then the market is essentially pricing HDD to go away in about 5 years. This ignores the fact that for SSD to be adopted 100% the factories must be built to make those SSDs. To put some numbers on it. The laptop storage market grew from 69EB (exabytes) to 95 EB from 2010-2011. Flash capacity went from 11EB to 21EB. However 90% of that capacity went towards Smartphones, tablets and SD cards. Only 2.1 EB went towards SSD. Why is that the case? I think it simply reflects the cost/utility. SSD is 10 times more expensive than HDD. That gap according to Moore's Law will decrease by 50% every 18 months, but remember with STX/WDC together spending $2Bn on R&D per annum (some towards SSD) the cost of HDD is also still rapidly going down. So the gap will probably take closer to 10 years to close. 5 years from now SSD will still be twice that of HDD.

So the cost of capacity for flash. The laptop storage market will probably be about 125 EB in 2012. Samsung's Fab 16s was complected at a cost of $11Bn in 2011 with a capacity of 6 EB per annum. So a very rough/back of the envelope calculation suggests a $229Bn investment for the notebook market alone and assumes it can all be built tomorrow. It will money and time.

 

 

Reading over all the jargon the basic points are that it takes time and cost a truck load to adopt SSD and at a PE of 5 (EV/NI is less) you might very well be overcompensated for taking on that risk.

 

Technical Note: SSD or solid state drive is essentially flash in a tray. Think of a SD card, made bigger and put in a tray to use as a hard drive in your laptop. Same technology, different use.

 

b. Both companies are in SSD already and they know how to adapt. WDC started out manufacturing semiconductors for calculators in 1970, motherboards for desktops in the 1980s and moved into HDDs in the 1990s, storage products in the 2000s and now it is a solutions business. Do yourself a favor and visit http://www.wdc.com/en/ and look at the products. Is this a HDD company or a product/solutions company?

 

2- Historically, computing has been in an incredible secular bull market but many segments of it haven't made that much money at all.

 

Look at IBM... it has gotten out of memory manufacturing, making consumer PCs, and making hard drives.  These aren't high-ROE areas of the overall computing market.  IBM is probably one of the smartest players in the computer industry as it has transformed itself from a dying mainframe company to a software/services/integration company.

 

Intel is getting out of making flash memory (and it got out of making memory a long time ago).

 

Berkshire Hathaway companies in the computer industry would be IBM, Microsoft, Intel, etc.  (It currently only owns IBM.) 

 

2b- Of course, flash storage could turn the hard drive industry into a slowly-declining industry.  It's really hard to make money in a tough business.

 

I think that 10/20 years from now, IBM/Microsoft/Intel will make a lot more money for shareholders than Western Digital and Seagate.

 

*Long Intel, so I am biased.

 

Those were my sentiments exactly. Now consider the following according to Reuters.

 

AVG 10 year ROE (%)

INTEL 12

MSFT 33

IBM 45

WDC 52

STX 42

 

AVG 10 year ROC

 

INTEL 17

MSFT 17

IBM 9

WDC 15

STX 8

 

10 year total cash flow numbers (Bn)

INTEL (Market Cap - 100 Enterprise Value 97)

OCF 131

WC+Capex -54

FCF 77

Div -22

Buybacks -46

Goodwill (indicator of growth by acquisition) 10

 

MSFT (MC - 224 EV 170)

OCF 176

WC + Capex  -22

FCF 153

Div -64

Buybacks -83

Goodwill 13

 

IBM (MC - 214 EV 235)

OCF 170

WC + Capex -52

FCF 118

Div -20

Buybacks -91

Goodwill 26

 

WDC (MC - 9 EV 7.6)

OCF 8

WC + Capex -4

FCF 4

Div 0

Buybacks -1 (Another 1Bn this year)

Goodwill 2

 

STX (MC - 10 EV 11)

OCF 13

WC + Capex -8

FCF 5

Div -1.5

Buybacks -4

Goodwill 0.5

 

Bear in mind that WDC and STX is now operating in a duopoly.

 

 

An interesting aside:

In 2011 5% of the technology type of the storage market size sold (20 EB) was made up of magnetic tape worth about $1Bn in revenues. The companies involved? IBM, Oracle and LTO-Consortium.

 

 

Thanks for the input. Keep it coming.

[MrB]

 

Wow, so to make money off this company one has to figure out where the HDD/Flash/whatever technology will be in a couple of years? I rather poke myself in the eye.

 

Now many years? PE of 5 with flat to increasing FCF with 50% of it being returned to shareholders via a buyback. It shrinks the time you have to think about significantly. The technology?

At what point would you have given up on investing in automobile engine manufacturers back in the day? When you essentially had a duopoly and electric "engines" were introduced? With electric the cost was prohibitive and there was no clear advantage over the existing technology. How come we have not changed the basic technology of the car engine for decades?

 

Take a look at the attached picture. The basic technology has not changed. Same thing only smaller. Also even if flash did replace HDD it will take years and you don't have to know anything about the technology to figure it out. You only have to understand data storage demand and cost of capacity. I also feel technologically challenged, but I don't think you need to figure out the technology, cost of capacity gets you there.

[MrB]

A minor point to consider is that flash technology will have trouble continuing its rapid increases in capacity and performance.  Shrinking the size of the transistors will start running into some big problems in the next several years.

 

this narrative of SSD is going to kill HD has been talk about for so long, doesn't mean it can't happen soon, but i don't see it happening anything soon

Technology changes can happen very very quickly.

 

Software... look at ICQ and Myspace.

Smartphones... look at RIMM and its stock price (or market share or free cash flow).

 

Storage... look at the Jaz drive.  USB thumb drives and mp3 players have killed a lot of demand for CDs and floppy discs.

 

I think it's perfectly reasonable to expect the current trend of more flash to continue for the next few years.

 

Question. Did it kill or move storage? If it moved the data, where is it being stored now?

[MrB]

What this also means is that until this problem can be overcome flash will never make an appearance in datacenters.

Flash is rapidly growing in datacenters.  People have figured out how to overcome that problem (to some degree).  It is already selling right now.

 

Here is a great blog on the high-end storage industry:

http://storagemojo.com/

 

Unfortunately, I couldn't figure out who the winners will be.

 

Most laptops still run hard drives at 5400 rpm, whereas a desktop drive at 15000 rpm isn't uncommon.

A desktop drive at 15k rpm would be extremely uncommon.  The Western Digital raptor runs at 10k rpm versus 7200rpm (and 5400rpm) of mainstream hard drives.  I don't know of any products targeted at the desktop market that is faster.

 

I think that flash will clearly kill off most demand for high-rpm hard drives.

 

Flash is rapidly growing in datacenters.........True, but it's relative and from a low base. Datacenters itself is growing rapidly. Also, why would you put flash into a data center at 10 times the cost? Speed. However, once you dealt with the data quickly then at some point the need for the speed goes away, but the data does not. It then gets moved. Where to? HDD and maybe ultimately tape.

 

Look at the attached. These technologies compliment each other. Say you have today's AIG Bloomberg article on ILFC being sold. There will be very high demand for that article today. Flash will do the job and it pays because today that article is worth a lot. Tomorrow? Next week, Next month? It can now be stored on HDD, because speed is not needed anymore. Next year and beyond. Put it on tape, because you are going to have very few people accessing that data. Roughly 20% of data still stored on tape today?

 

[MrB]

- fundamentally storage is here to stay, someone/some company will provide storage, the storage might be in the form of HD, solid state, or whatever.... the key is be dominate as THE STORAGE company.

There are different segments of the storage industry.

 

Companies like EMC and Netapp that do enterprise storage are increasingly becoming software companies.  (With some services and integration... because their products are complicated.)  I think that this segment of storage will be an area of a lot of value creation.  Dell paid a ridiculous P/E multiple for Compellent. 

 

There are companies that make flash hard drive controllers (e.g. Sandforce).  These chips will become increasingly complicated as time goes on (in the future, they will have to do a lot more error correction).  There may be some unusual value creation here... though I don't know who the winner will be.

 

There are companies that slap parts together, e.g. OCZ.  I don't think that this is a great industry.

 

There are companies that make the parts that go into a hard drive... e.g. Hutchison Technology.  Not a great industry.

 

Another way to look at it is to look at the industry structure. The suppliers to WDC/STX's numbers look horrible, which makes sense if you are supplying to a consolidating industry. The attached (pages 7-10) gives a good breakdown of the industry.

Seagate-Technology-Final-Version.pptx