Western Digital Seems Extremely Cheap

[hyten1]

MrB I agree :)

 

Damn you're making a persuasive case for this stock.......basically an old-style rollup in a consolidating/declining industry.

 

I'm actually not..well I'm trying not too. I am just highlighting the facts, because the more I look at those the more my own reservations seem to be irrelevant. It just seems terribly misunderstood.

 

It does deserve some respect you know ;-)

 

"Like flying a Boeing 747 six inches above the ground"

http://www.atarimagazines.com/v5n6/InsideHardDisk.html

[no_free_lunch]

It seems like a trap to me.  PE of 6 is fantastic but the future of HDD is not good. 

 

I was looking at upgrading my computer the other month and SSD drive prices are down aroung $0.50 / GB.  That is not good enough for a primary drive but the price per GB will just continue to come down.  If I could get a 400 GB drive for $99 there would be no question about it, I'd get SSD and that would be it.

 

Look at it this way, SSD have 2-4 x the performance, they are more shock resistant, they are much better at handling random access which will continue to come our way with parallel processing, tech people just consider them better all around.  The price right now is $0.50 per GB, with Moore's law doubling capacity every 2 years, in 10 years it will be $0.50 / 32 GB or $1 / 64GB.    So $99 is a 6 TB SSD.  Now yes, you could probably get a 50-100 TB HDD for that price but at some point people just don't need the capacity anymore. 

 

Over the past decade we had first audio, and then video drive hard drive space requirements.  Audio is already not an issue for most SSD drives and certainly within a decade video won't be much of an issue.  With 6 TB you can store 1200 HD movies.  For backing up your files you can already get 64GB usb sticks for like $40, in 10 years they will be 1 TB sticks for $40.  For personal files what more do you really need?  Sure, there will be the odd person who just has to have every episode of every tv show or movie they will ever watch, plus 200 -300 games and needs 50 TB storage but I just don't think that's the norm.  There will also be corporations with huge data requirements but even then there are are only so many of them and I don't know that they would replace the home market.  At the same time, I am an IT guy and the current generation of servers is the last that I want without SSD, the next one it just won't be an issue.  We already are not using up the HDD space and when I can get 1TB SSD, with the performance advantage it's a non issue.  Basically in the future I see HDD being used by hobbyists and businesses and while there will still be large numbers sold it just won't compare to what we have right now in terms of volume.

 

Right now they are selling ballpark 300-400 M HDD drives based on a quick google search.  The forecasts I saw called for that number to drop in half over the next few years, who knows where it will be in a decade. 

 

If my thesis is correct and the industry erodes over the next decade I just don't see how you make money on the stock.  If everything went perfect for 10 years, you made the PE of 6 each year and every penny went back to shareholders you would get a 66% return over a decade + liquidation value which isn't even that great.  However there are bound to be ups and down over the decade that hit profits and as this plays out there could be a lot of down periods with sales dropping followed by industry members losing their self-control and trying to grab market share from the dwindling pot.  I could just see it getting really ugly. 

 

Sorry for the pessimism, feel free to rip my argument to shreds.  :P

[hyten1]

no_free_lunch,

 

your argument is most likely correct and its nothing new, that is the main thesis holding down WDC/STX etc

 

technology change, technology transition, this is nothing new, everyone is aware of this

 

the question is  how fast how soon and can companies adapt.

 

the longer it takes the more chance WDC/STX can adapt

 

also don't forget WDC/STX's heads are not in the sand, its not a horse and buggy company that is only making hoses and buggies

 

also look at the valuation a lot of the concerns that everyone is aware of and know about are, you can argue price in, if not it certainly has affected WDC/STX's valuation.

 

for me its a small position, i buy when i have a large margin of safety (I could be wrong)

 

EDIT: It also depends on how you play this, i would never buy this and just forget about it. There are uncertainties and unknowns, so i would want a larger margin of safety and the price ever gets ahead of itself i sell. I obviously keep an eye out on the HDD and SSD transition.

 

if PE of 6 within 6 years you  would have made your entire money back. of course this general math (PE can be 6 but both price and earning could drop at the same rate)

 

It seems like a trap to me.  PE of 6 is fantastic but the future of HDD is not good. 

 

I was looking at upgrading my computer the other month and SSD drive prices are down aroung $0.50 / GB.  That is not good enough for a primary drive but the price per GB will just continue to come down.  If I could get a 400 GB drive for $99 there would be no question about it, I'd get SSD and that would be it.

 

Look at it this way, SSD have 2-4 x the performance, they are more shock resistant, they are much better at handling random access which will continue to come our way with parallel processing, tech people just consider them better all around.  The price right now is $0.50 per GB, with Moore's law doubling capacity every 2 years, in 10 years it will be $0.50 / 32 GB or $1 / 64GB.    So $99 is a 6 TB SSD.  Now yes, you could probably get a 50-100 TB HDD for that price but at some point people just don't need the capacity anymore. 

 

Over the past decade we had first audio, and then video drive hard drive space requirements.  Audio is already not an issue for most SSD drives and certainly within a decade video won't be much of an issue.  With 6 TB you can store 1200 HD movies.  For backing up your files you can already get 64GB usb sticks for like $40, in 10 years they will be 1 TB sticks for $40.  For personal files what more do you really need?  Sure, there will be the odd person who just has to have every episode of every tv show or movie they will ever watch, plus 200 -300 games and needs 50 TB storage but I just don't think that's the norm.  There will also be corporations with huge data requirements but even then there are are only so many of them and I don't know that they would replace the home market.  At the same time, I am an IT guy and the current generation of servers is the last that I want without SSD, the next one it just won't be an issue.  We already are not using up the HDD space and when I can get 1TB SSD, with the performance advantage it's a non issue.  Basically in the future I see HDD being used by hobbyists and businesses and while there will still be large numbers sold it just won't compare to what we have right now in terms of volume.

 

Right now they are selling ballpark 300-400 M HDD drives based on a quick google search.  The forecasts I saw called for that number to drop in half over the next few years, who knows where it will be in a decade. 

 

If my thesis is correct and the industry erodes over the next decade I just don't see how you make money on the stock.  If everything went perfect for 10 years, you made the PE of 6 each year and every penny went back to shareholders you would get a 66% return over a decade + liquidation value which isn't even that great.  However there are bound to be ups and down over the decade that hit profits and as this plays out there could be a lot of down periods with sales dropping followed by industry members losing their self-control and trying to grab market share from the dwindling pot.  I could just see it getting really ugly. 

 

Sorry for the pessimism, feel free to rip my argument to shreds.  :P

[MrB]

It seems like a trap to me.  PE of 6 is fantastic but the future of HDD is not good............ 

 

Sorry for the pessimism, feel free to rip my argument to shreds.  :P

 

Those are fair questions, but as Hyten suggested it is nothing new.

 

Price/Gb going down is a good thing just as Henry Ford thought it was a good idea to make cars cheaper thereby making it more affordable to more people which broadens the market.

The price needs to go down to ensure it stays competitive with SSD. This fact is missed by many that say the price of SSD is going down. Correct, but so is the price of HDD.

Price/Gb? This might be the wrong question to ask. Price/drive might be more appropriate. Price/Gb illustrates the speed of innovation. It is interesting to compare the drop in prices/Gb with that in drives.

Take a look at this website http://www.mkomo.com/cost-per-gigabyte , which essentially demonstrates Moore's law. Price/Gb halves every 18 months. However price / drive? On average every 5 years. For the latter you have to work with data provided on that webpage, but you can just eyeball it too. It is unclear which prices they used; it seems they used top end drives whereas I tend to focus on ASP (average selling price). So assuming the logic translates then it is noteworthy that in 2003 ASP were almost exactly where they are today, bearing in mind we saw a huge jump due to the Thai floods.

 

P/Gb is more an indicator of pace of innovation and necessary for ensuring desirability/utility of product than anything else. What counts is price per drive and cost of manufacturing/R&D.

 

This is where WDC/STX's financials become most illuminating. How is it possible for companies in such a down and out, price destroying industry to increase all margins (gross, operating and net) over the last 10 years? If they are on their way out and being squeezed from all sides then how come their days payable tripled over the last 10 years, days receivable more or less doubled (actually today it is the same as 10 years ago, but the last year is a big change from the trend) and inventory more or less doubled. This explains cash flow margins going up about 3 times. This culminates in sky high ROE and high ROC margins.

 

So I hear what you are saying, but even a cursory glance at the financials indicates that something does not add up and when you dig deeper there seem to be some explanation for why these companies have been doing so well.

 

There just seem to be more than meets the eye.

[MrB]

HDD Industry Reports Bleak Results as Shipments Plunge in Q3

Weak PC demand and the rising challenge from tablets blunt sales of the storage medium

November 16, 2012

FANG ZHANG

Hard disk drive manufacturers had a rough third quarter when HDD shipments plunged a steep 11 percent, a loss the industry blames on a host of economic and market-related factors, such as the usurping of PCs among consumers by ever-more popular tablet devices, according to an IHS iSuppli Storage Space market brief from information and analytics provider IHS.

 

HDD shipments in the third quarter amounted to 139.2 million units, down from 157.0 million units during the second quarter. The most recent results reversed the 8 percent gain that took place in the second quarter, and they also represent the lowest third-quarter shipment level in at least five years for the storage medium. Just last year for the same July to September period, HDD shipments had stood at a lofty 175.3 million units.

 

.........................

A return to growth, then, for the HDD space is more than likely—even though that would transpire over the longer term, and not for what’s left of the year.

 

Complete article- well worth reading

http://www.isuppli.com/Memory-and-Storage/MarketWatch/Pages/HDD-Industry-Reports-Bleak-Results-as-Shipments-Plunge-in-Q3.aspx

[no_free_lunch]

MrB,

 

" This fact is missed by many that say the price of SSD is going down. Correct, but so is the price of HDD"

 

What I am saying is that even if we assume that the ratio of HDD being 1/10 the price of SSD on a GB level stays the same you are still in trouble.  Right now, people still buy hard drives because for $100-$200 you just can't get the 500 GB to 1TB that you need.  However, in 2-3 years as they come down in price SSDs will be offering that kind of storage in the $100-200 range.  There is a certain point where people just don't need the extra storage that HDD has to offer.

 

Now you might be thinking that people's storage requirements will just increase but I am not sure that that is the case.  There is just nothing on the horizon that requires vast amounts of storage.    HD video requires huge storage but it's been out for years already, I don't know what else there is for the average joe. 

 

I am not trying to say that 500 GB or 1 TB is the amount the average person needs but it's in the ballpark.  For some people it might be 2 TB, others 5 or 10.  There will be the odd person who wants 100 but I think that will be rare.  The point is that in the next 10 years, SSD should be able to offer 5-10TB of storage for $100.  Yes, HDD will offer 50 TB or 100 TB for $100 but most people just don't need it and I think would rather have the faster access times and shock resistance. 

 

Now in 10 years there will still be a market for HDD, I am not trying to dispute that.  I just don't think it will be anywhere close to the 400 M units we have today.

 

The financials and recoverability for the stock are another story.  I am not sure how this all plays out.  I looked at seagate and it is selling at a PE of 4 which I have to admit is promising.  If all the competitors are very disciplined and play things perfectly, you could make some good money off of it.  There could be a goldilocks scenario where the vendors keep price discipline and just keep reducing volumes as sales decline which could support the prices.  If they keep buying back shares aggresively, paying out large dividends and minimizing capital investment you could make a decent return.    I am just not sure I would bet on that happening human nature and random events being what they are.

 

If you want to bet on the declining PC industry I think Intel is a better choice.  It is more expensive but I can actually envision them being still relevant in a decade.  They also currently don't have any serious competition as is evidenced in their margins.  Their is also that side chance that they are able to break into the tablet market.  If that happens the shares could soar.  If not the PC market should exist long enough for investors to make a decent return.  At any rate, if the PC industry does just keep crumbling an d everyone switches over to ARM well at least it's just Intel and AMD, there is a chance that they stay disciplined enough to milk it to the end.

[ericd1]

I've been following STEC for more than a year because of their SSDs. They were in early and had products available before most of the larger mfgs. Unfortunately they were unable to capitalize on their advantage. Since then it has been a downhill run. 

 

The article below mentions the 'cutthroat' SSD pricing in the enterprise market. A major shareholder wants the company to sell itself (founders family).

 

http://finance.yahoo.com/news/big-shareholder-urges-stec-consider-145137264.html

 

Heres my 2 cents about the industry. There's money to be made in the data storage industry, but I'm not sure investors are the ones that are going to get it. At least from hardware. There may be better opportunities in storage related software or controllers as mentioned previously.

 

Cisco owns a big chunk of VMware and they are gaining share in storage with several recent major mfg wins. They are buying back a lot of stock and might be worth a look. I haven't bought any CSCO  but taking a hard look. It looks good but kinda in the too hard pile - too many possible disrupters.

 

 

 

 

 

 

 

[ItsAValueTrap]

This is where WDC/STX's financials become most illuminating. How is it possible for companies in such a down and out, price destroying industry to increase all margins (gross, operating and net) over the last 10 years? If they are on their way out and being squeezed from all sides then how come their days payable tripled over the last 10 years, days receivable more or less doubled (actually today it is the same as 10 years ago, but the last year is a big change from the trend) and inventory more or less doubled. This explains cash flow margins going up about 3 times. This culminates in sky high ROE and high ROC margins.

If you look at the memory/RAM business, there was a brief period where the industry colluded to fix prices.  Later on, they all got fined for doing it.

 

2- I don't see why their high margins will stay consistently high.  But... I am not shorting or long these stocks.

 

I've been following STEC for more than a year because of their SSDs.

I made a lot of money shorting this company back in the day (after it announced its secondary and the CEO was selling his shares).  I didn't understand the technology too well back then though but STEC was heavily shorted.  (It still is... 17% of float short according to yahoo finance.)

 

Management is extremely shady.  Manouch Moshayedi has resigned amid insider trading charges and his brother (who probably knew what Manouch was doing) is now the CEO?  Haha.

 

As far as their products go, I don't really know.  Go read storagemojo.com... it seems like the trend is towards commodity drives + software.  Instead of paying a premium for enterprise-class equipment, you can buy more consumer drives and then you do the redundancy/reliability in software with RAID-like techniques.

 

Google for example does not use enterprise-class drives at all as far as I know.

[MrB]

MrB,

 

" This fact is missed by many that say the price of SSD is going down. Correct, but so is the price of HDD"

 

What I am saying is that even if we assume that the ratio of HDD being 1/10 the price of SSD on a GB level stays the same you are still in trouble.  Right now, people still buy hard drives because for $100-$200 you just can't get the 500 GB to 1TB that you need.  However, in 2-3 years as they come down in price SSDs will be offering that kind of storage in the $100-200 range.  <b>There is a certain point where people just don't need the extra storage that HDD has to offer.</b>

When I read the above I am naturally inclined to agree. I am not trying to placate you, I really do think. Yes, it is correct. The problem with that argument is that at no point in history has that ever been true and the facts simply do not support the notions that a) SSD will deliver and b) that people will not need the storage.

<b>a.</b>

SSDs most immediate problem is not demand, it is cost to supply. It simply cannot deliver. Worse yet, the substantial upfront cost to supply must be considered against a precipitous drop in prices, driven by HDD. The problem for SSD seems to be that HDD is driving down prices in an economically profitable way, whilst SSD is not.

The rough numbers on SSD fabs are currently $10Bn for 5EB, so do the math. To successfully displace HDD in 2012 SSD will have to come up with 2,600 EB (see below) of annual capacity and at $2Bn/EB ($10Bn/5EB) we’re talking…ok I’m not even going to say it, because it looks ridiculous. Let’s just say they replace HDD in the laptop market, all 280EB of it. That is $560Bn of capacity investment. What is the probability of that happening? Now if you are an OEM? Where do you go? Essentially there are two doors you can knock on, WDC/STX.

However, I think it is key to understand that it is not a cost of data story, it is a price v cost per drive story. Why are people (including myself originally) so hung up on the cost per GB? Do we think about the airline industry as price per mile flown or cars as price per mile driven? No, we think about how much does it cost to produce and how much can I sell it for.

 

<b>b.</b>

Take a look a the first two charts in the attached. What is interesting is that this was pulled from a <u> March 2008</u> IDC white paper and those forecasts for the number of exabytes matched up, almost to the last kilobyte, to the way the market developed. So I think one need to be slow to dismiss the industry forecasts by people like IDC. What does that look like? The following charts in the attached illustrates the estimates of moving from the current estimate for 2012 of 2,600 EB to 8,000EB in 2015. It is noteworthy that WDC and STX work with internal forecasts for storage needs which are dramatically below that. See last charts on the attached. Yes, PC demand might be flat to negative, but the attached illustrates that PC is a small part of the story. The question, really is not about whether there is going to be a need for data storage, it is how well WDC/STX will capture the storage needs of the cloud, which is/will be massive.

Now in 10 years there will still be a market for HDD, I am not trying to dispute that.  I just don't think it will be anywhere close to the 400 M units we have today.

The industry has not been below 400m units since 2006 and analysts current estimates for 2012 is 600m, while WDC guides 560m.

Once again the facts of this story paints a different picture to people’s (including mine!!) incorrect assumptions about the industry.

The financials and recoverability for the stock are another story.  I am not sure how this all plays out.  I looked at seagate and it is selling at a PE of 4 which I have to admit is promising.  If all the competitors are very disciplined and play things perfectly, you could make some good money off of it.  There could be a goldilocks scenario where the vendors keep price discipline and just keep reducing volumes as sales decline which could support the prices.  If they keep buying back shares aggresively, paying out large dividends and minimizing capital investment you could make a decent return.    I am just not sure I would bet on that happening human nature and random events being what they are.

Good points and those are important things to watch. Gross margin and return of capital is key. STX returned returned $4Bn of cash over the last three years v a market cap of $10Bn and WDC just under $1Bn v a market cap of $9Bn. However, WDC has now started paying an annual $250m dividend with 50% of FCF (ex dividend) being returned via share buyback, dependent on price. So, although the proof is in the pudding, there already is some pudding.

If you want to bet on the declining PC industry I think Intel is a better choice.  It is more expensive but I can actually envision them being still relevant in a decade.  They also currently don't have any serious competition as is evidenced in their margins.  Their is also that side chance that they are able to break into the tablet market.  If that happens the shares could soar.  If not the PC market should exist long enough for investors to make a decent return.  At any rate, if the PC industry does just keep crumbling an d everyone switches over to ARM well at least it's just Intel and AMD, there is a chance that they stay disciplined enough to milk it to the end.

It is not a PC story, as alluded to earlier; a common misconception. However, it still needs to be proven that WDC/STX can migrate into the cloud with the demand for storage. Bear in mind that speed of data access and value of light/mobile is not an issue in the cloud and there SSDs natural advantages are less relevant.

<b>Thanks for raising some good points!</b>

[MrB]

I've been following STEC for more than a year because of their SSDs. They were in early and had products available before most of the larger mfgs. Unfortunately they were unable to capitalize on their advantage. Since then it has been a downhill run. 

 

The article below mentions the 'cutthroat' SSD pricing in the enterprise market. A major shareholder wants the company to sell itself (founders family).

 

http://finance.yahoo.com/news/big-shareholder-urges-stec-consider-145137264.html

 

Heres my 2 cents about the industry. There's money to be made in the data storage industry, but I'm not sure investors are the ones that are going to get it. At least from hardware. There may be better opportunities in storage related software or controllers as mentioned previously.

 

Cisco owns a big chunk of VMware and they are gaining share in storage with several recent major mfg wins. They are buying back a lot of stock and might be worth a look. I haven't bought any CSCO  but taking a hard look. It looks good but kinda in the too hard pile - too many possible disrupters.

 

For what its worth, over the last decade WDC <u>increased</u> sales, net income, assets and equity by $10Bn, 1.5, 13.5 and 5.4 respectively. 15% net margin, 11% ROC and 27% incremental return on incremental equity. That is reflected in the share price which increased 10 fold!

 

You see this is my problem. When I read your comments, I go, yeah man, the dude's right! However, when I pull the facts I almost need to do a double take. My assumptions count for rubbish, it is the facts that count.

 

You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else (Edit:In this case, my own emotially driven misconceptions). -Benjamin Graham

[MrB]

If you look at the memory/RAM business, there was a brief period where the industry colluded to fix prices.  Later on, they all got fined for doing it.

Great point. I don't see how WDC/STX are not going to be fined in future. The European Commission's report on the Seagate/Samsung merger is well worth a read. I'm very distrustful of these Fed/AG/EC investigations/fines. Just see it as a way to fill holes that cannot be met with taxes otherwise. So I am biased. However, when I finished reading that report I could not help but think. Yeah, let's allow these suckers to merge, because we are going to fine the living daylights out of them. I'm just not able to follow the logic they applied when deciding to allow them to merge.

In light of that read this

Hitachi, Seagate and WD to Jointly Research Hard Drives Technology.

http://www.xbitlabs.com/news/storage/display/20100818121426_Hitachi_Seagate_and_WD_to_Jointly_Research_Hard_Drives_Technology.html

 

I will be extremely surprised if these guys do not get fined in the next 5-10 years to the point that I think it needs to be in the price. EC rule of thumb is max 10% of turnover, so potentially $3Bn for the two or 1/2 annual FCF.

 

2- I don't see why their high margins will stay consistently high.  But... I am not shorting or long these stocks.

Agreed, but how does one explain away a clear trend of steadily increasing gross margins, since 2001? See attached.

[MrB]

The coming crisis in disk drives

http://storagemojo.com/2012/10/16/the-coming-crisis-in-disk-drives/

[MrB]

The coming crisis in disk drives

http://storagemojo.com/2012/10/16/the-coming-crisis-in-disk-drives/

 

The comments to that article is also well worth a read. Things I have not thought of before.

 

The biggest cloud providers are moving further down the value chain, designing their own servers, network switches, and chips – Google is Intel’s fifth largest customer. How soon will they demand unique models of disk drives, SSDs, and tapes? More niches, but comfortable niches.

 

Is it inconceivable that somebody buys WDC or STX. I recall from at least WDC management's incentives that they will be very well compensated for a takeover.

You mentioned cloud providers are buying disk drives to hold the content that used to be stored on PCs, but it’s not a one-for-one ratio.

 

Consider: when I create content on a PC, say for example a 200MB video clip, I store it on disk locally and (presumably) I back it up on another disk, the “multiplier” is 2X.

 

If I put that same content in the cloud, it is replicated on MANY disks…a dozen or more on (for example) YouTube. Same goes for photos on Flikr, doc files on Google docs, Skydrive etc.

 

The massive redundancy that underlies all Cloud architecture…the ‘cloud multiplier effect’ if you will…is truly the ‘silver lining’ for HDD makers.

[thomcapital]

Is it inconceivable that somebody buys WDC or STX. I recall from at least WDC management's incentives that they will be very well compensated for a takeover.

 

From an interview with Steve Luczo earlier this year:

 

Q: Could we get new players?

A: The technology is too hard, on all of it. No.

 

Q: What does that mean for investors in drive stocks?

 

A: If you were a really big, smart technology company that saw all the trends in cloud and mobility; all that says is storage, storage, storage – you’d probably see a reason why owning these critical technologies is important. But you’d run into so much flack from someone saying, oh, you should do software and services only.

 

Q: So are you saying something could try to buy you or WD?

 

A: I think if someone were thinking about it from a pure technology perspective, they’d be all over it.

 

Q: But who would it be?

 

A: Any big technology company, you can fill in the blank. IBM, EMC, HP. Anyone that’s big. But they won’t, because that’s not what the market wants them to do. The market does not want them to be in the hardware business. Although Todd Bradley [who runs the PC business at HP] just wrote a great article on why hardware is important. And the end of the day, all this stuff has to be delivered on hardware. If I’m in the business of selling in the cloud, and all the cloud is is a disk drive with some bandwidth, I need access to drive technology. At the end of the day, all I’m doing is taking disk-drives and integrating them. It depends how big is my cloud business going to be.

 

http://www.forbes.com/sites/ericsavitz/2012/04/12/seagate-ceo-luczo-on-drives-zettabytes-flash-and-his-tattoo/

[MrB]

I find this interesting, especially considering that Apple is estimated to consume about 25% of NAND supply in 2012

Apple's new iMac a turning point for hybrid drives

http://economictimes.indiatimes.com/tech/hardware/apples-new-imac-a-turning-point-for-hybrid-drives/articleshow/17603762.cms

[hyten1]

just some personal experience, i recently bought an ultrabook (little less than $1k), it has a hybrid drive in it with windows 8

 

my personal experience i need more and more harddrive space prob 1 or 2tb and i don't think i am a power user

 

the the drive have been fill up by me taking photos and video of my kids and my kids are only 1 to 3 year olds and i don't think i am one of those crazy parents either

 

i have been taking more and more videos instead of pictures, they are just better, using my digital camera, which takes HD videos (a small point and shoot carmear)

 

i easily use Gigs of space without even knowing it, also the videos i take are not very long either usually less than 1 min or around there.

 

 

also for me cloud has its place, i would never put all these videos/photos on the cloud, i guess i could but the upload time is just too long, also i would easily use up all the FREE cloud spaces usually companies provide you and would start charging me, which why would i pay when i can get 1 TB or 2 TB for few hundred bucks

 

 

 

 

[shoeless]

More personal experience: hyten, I too have a few terabytes around the house. The thing is that the commodity hard drives we buy are quite unreliable and can't be trusted for data you do not want to lose. For me the data is important so I back up to additional drives and move some of them to the office for safety in case something happens at the house. All in all I have 3 copies of the data. Its quite a hassle to manage and its not as safe as it sounds because a drive can be corrupted without me noticing (since I just periodically back up the new changes and don't re-read and check all the old data on the backup drives)

 

The cloud offers the potential to save me some of the hassle of connecting/disconnecting drives etc... as well as increasing the overall reliability but so far the services I've seen have been too expensive for me.

However recently Amazon introduced Glacier http://aws.amazon.com/glacier/

At $120 per TB of *reliable* storage per year (plus bandwidth costs) I'm considering backing up to the cloud.

 

There's a good chance that whether the data is in the cloud or at home WDC and Seagate will be selling the drives but I have read speculations that Glacier could be using tapes rather than disks.

 

[MrB]

More personal experience: hyten, I too have a few terabytes around the house. The thing is that the commodity hard drives we buy are quite unreliable and can't be trusted for data you do not want to lose. For me the data is important so I back up to additional drives and move some of them to the office for safety in case something happens at the house. All in all I have 3 copies of the data. Its quite a hassle to manage and its not as safe as it sounds because a drive can be corrupted without me noticing (since I just periodically back up the new changes and don't re-read and check all the old data on the backup drives)

 

The cloud offers the potential to save me some of the hassle of connecting/disconnecting drives etc... as well as increasing the overall reliability but so far the services I've seen have been too expensive for me.

However recently Amazon introduced Glacier http://aws.amazon.com/glacier/

At $120 per TB of *reliable* storage per year (plus bandwidth costs) I'm considering backing up to the cloud.

 

There's a good chance that whether the data is in the cloud or at home WDC and Seagate will be selling the drives but I have read speculations that Glacier could be using tapes rather than disks.

 

Tape "seems" to be a sideshow, but very interesting. It looks to be used mostly for "cold storage". So archive type data that does not need to accessed frequently. The growth in areal density for tape is actually significantly higher than HDD or SSD and the costs drastically lower. It underscores again that these technologies are complimentary rather than exclusive...well it's really a bit of both.

 

Revenue from tape is only about $0.7Bn or thereabouts and make up 5% of the storage market measured in EBs

[ItsAValueTrap]

If I put that same content in the cloud, it is replicated on MANY disks…a dozen or more on (for example) YouTube. Same goes for photos on Flikr, doc files on Google docs, Skydrive etc.

 

Here's how Google works as far as I know:

- If the data isn't that important, it is stored on two different hard drives.  2 copies.

- If it is important, it is stored on three hard drives.  3 copies.

- I also believe that Google does incremental backups onto tape.  So at least another copy.

- If your file is Justin Bieber's music video with hundreds of millions of hits, then it will likely need to be cached at multiple locations in the world and there will be quite a few copies of it.  So I think that this is the only time when data is replicated onto several discs.

 

 

Regarding WDC's performance... it is not bad.  Unless you compare it to Intel (or Microsoft, Cisco, EMC, Xilinx, Altera) since inception.

If you look back really far in history, hard drive stocks used to be all the rage (companies making "Winchester drives") and didn't make a lot of money for shareholders.

 

Agreed, but how does one explain away a clear trend of steadily increasing gross margins, since 2001? See attached.

Do you have data that includes the tech bubble?  The tech bubble boom and bust had a huge effect on industry profits and margins.

Intel is currently only starting to make more profit than its peak tech bubble days.  The same goes for Xilinx and Altera.

 

The biggest cloud providers are moving further down the value chain, designing their own servers, network switches, and chips – Google is Intel’s fifth largest customer. How soon will they demand unique models of disk drives, SSDs, and tapes? More niches, but comfortable niches.

Google has cut out the middlemen (e.g. Dell, Ingram Micro) but I'm not sure that they will demand individual models of hard drives.

 

They do buy unique models of motherboards.  And I believe power supplies and UPSes (it's not exactly a UPS).

 

I think that the biggest thing about Google is that it doesn't seem to buy enterprise-class drives.  If you look at the way the Google File System works, it is sort of like a bunch of RAID1 arrays with commodity hardware.

[ItsAValueTrap]

The rough numbers on SSD fabs are currently $10Bn for 5EB, so do the math. To successfully displace HDD in 2012 SSD will have to come up with 2,600 EB (see below) of annual capacity and at $2Bn/EB ($10Bn/5EB) we’re talking…ok I’m not even going to say it, because it looks ridiculous. Let’s just say they replace HDD in the laptop market, all 280EB of it. That is $560Bn of capacity investment. What is the probability of that happening? Now if you are an OEM? Where do you go? Essentially there are two doors you can knock on, WDC/STX.

I don't think that any of us are going to argue that hard drives are going to go away completely.

 

I am personally unsure if the # of units shipped will continue to increase.  If you measure by exabytes, then it is likely that hard drives will always have the lion's share of the market (even decades from now).

Where flash will compete is in low-capacity drives (e.g. the boot drive in consumer PCs) and in performance-oriented enterprise-class drives (e.g. 10k+ rpm drives).

 

That small headwind might make a big difference to the industry's profitability.  (Or it might not.)

[Hielko]

HDD's are not going away, but I think you are completely wrong about where flash is going to compete. It's going to be a threat on every front since it's a superior product in almost every single way except price/GB, and that statistic is improving exponentially fast. 

 

Almost every decent laptop today is sold with an ssd. With ssd's getting cheaper and cheaper I don't think it's going to take long before hdd's are a thing of the past for notebooks. Not only do you have the speed advantage, but the size and power consumption advantage is huge for mobile devices. And this trend is combined with the trend of people using more and more mobile devices (laptops, but also tablets and smartphones). So I think there is a powerful force at work that is going to make hdd's a thing of the past for a large number of consumers. For desktop pc's I think hdd's will remain relevant a bit longer, but you also see here that they are getting demoted to a secondary role: part of their job is replaced by a small sdd as a boot disk, or some kind of hybrid solution (a nice example is the latest iMac).

 

And don't underestimate how fast the ssd market is developing. Three years ago I was probably one of the first to buy an ssd for my desktop-pc: that cost me ~E2.4/GB. Today you buy a faster model for ~E0.6/GB. Looking at some historical prices for hdd's: it seems that some models today are even more expensive than three years ago. That's obviously good for the profit margins of WDC and other hdd manufactures today: but that's not a situation that can last.

[no_free_lunch]

MrB,

 

You make some good points.  I think we are in agreement then that the consumer market is going to dwindle but there will be some replacement by data centers for large corporations and cloud providers.  Google, probably one of the biggest purchasers, uses commodity computers so I am fairly certain they are using seagate or western digital, at least in some cases.

 

I am just not sure about the forecast of the demand growth for cloud storage, it is very hard to predict.  I just know personally, and from my experiences in IT, we really are getting to a point where we just don't need significant storage past 1 or 2 TB.  There are certainly some companies that can use it, oil and gas is frequently cited as a major consumer of "big data" but I am not sure it will fill the void.    I just can't make a good call on this as I don't know the exact rate that storage demand will increase at and at what point it the growth rate starts to slow down.  I do know that SSD GB / $ should keep growing at 40% per year.  If storage demand grows at 25% a year then SSD will take over the cloud, if storage grows at 60% a year then then HDD will stay very much in demand.  A bit of an oversimplification but that is what I am grappling with.    I just don't like the odds and I still have a hard time seeing the average consumer needing 10's of TB of cloud storage so I think growth will slow down at some point.

 

I would also say that your logic of looking at past results may not be valid in this case due to SSD just starting to get to a reasonable price point.    You really need a 250 GB + hard drive for someone to use SSD as their primary drive and until the last few months it was just a little too expensive.  We are not getting into the point where the uptake on those hard drives will really kick off.

[shoeless]

 

Tape "seems" to be a sideshow, but very interesting. It looks to be used mostly for "cold storage". So archive type data that does not need to accessed frequently. The growth in areal density for tape is actually significantly higher than HDD or SSD and the costs drastically lower. It underscores again that these technologies are complimentary rather than exclusive...well it's really a bit of both.

 

Revenue from tape is only about $0.7Bn or thereabouts and make up 5% of the storage market measured in EBs

 

Interesting. Could people backing up to cloud backup services that use tapes turn around the seemingly secular decline in tapes?

I came across this for tape info: http://www.insic.org/news/A&S%20Roadmap.pdf

 

[MrB]

Regarding WDC's performance... it is not bad.  Unless you compare it to Intel (or Microsoft, Cisco, EMC, Xilinx, Altera) since inception.

If you look back really far in history, hard drive stocks used to be all the rage (companies making "Winchester drives") and didn't make a lot of money for shareholders.

I am not sure exactly what your point is, I assume it is fundamental performance, so I’m not sure the attached data speaks to your point. Please feel free to let me know if you meant something else.

I attached the gross margins, operating cash flows and sales over the long term. I think the trend is clearly still the same, more so for STX. However, WDC did experience significant weakness from 1998-2001, both operating cash flows and sales. STX stayed cash flow positive throughout the period, but both showed a significant slowdown in sales from 1997-2003/4.

I had a quick look at WDC’s 10k for 2000 and it suggests those losses were related to a major product recall, production costs which resulted in them moving production from Singapore to Malaysia and diworsification/botched acquisition of Connex in particular.

So not sure exactly what you are driving at and whether the above sheds light on that, but happy to explore.

On another note, I suppose the trick is to figure out how the rear-view mirror gives a sense of the road ahead for all those companies. For WDC/STX another concern is how much of that gross margin/general performance was driven by consolidation, which is now over. Will they play nice or is it a case of the big dogs staring each other down? The future could therefore look very different compared to the past for these two companies.

 

Do you have data that includes the tech bubble?  The tech bubble boom and bust had a huge effect on industry profits and margins.

Intel is currently only starting to make more profit than its peak tech bubble days.  The same goes for Xilinx and Altera.

See attached.

 

 

 

Google has cut out the middlemen (e.g. Dell, Ingram Micro) but I'm not sure that they will demand individual models of hard drives.

They do buy unique models of motherboards.  And I believe power supplies and UPSes (it's not exactly a UPS).

I think that the biggest thing about Google is that it doesn't seem to buy enterprise-class drives.  If you look at the way the Google File System works, it is sort of like a bunch of RAID1 arrays with commodity hardware.

I recall seeing that specifically mentioned. Google not buying enterprise class drives. The latter carry ASP 3 to 4 times more, what I have not been able to establish is what the gross margins on those look like. Obviously I’m thinking significantly more, but until I see it in the data it is a baseless assumption. Maybe I’m just seeing what I want to see or not in this case.

 

Lastly, I also attached the long term history of WDC's lifecycle, which shows the evolution of the company....it is a different company today compared to 10 years ago.

[MrB]

HDD's are not going away, but I think you are completely wrong about where flash is going to compete. It's going to be a threat on every front since it's a superior product in almost every single way except price/GB, and that statistic is improving exponentially fast. 

Based on what? A. As previously stated and supported by facts. Even if we assume you are right, the cost of SSD is prohibitive to meet demand. B. It is not a laptop story and even if it was it still only moves data into the cloud where the majority of it is stored on HDD. See attached for a more complete picture of what the playing field looks like. It is much bigger than laptops. It is much bigger than laptops and SSD have a definite role to play…but so does HDD.

 

SSD has its own issues on the tech front

SSD has a bleak future

http://www.computerworld.com/s/article/9224322/SSDs_have_a_bleak_future_researchers_say

 

 

This paper from IBM explains that the runway for HDD and tape is much brighter than for SSD

http://www.digitalpreservation.gov/meetings/documents/storage12/5-Fontana-StorageMediaDenstiyfoRNANDTAPE.pdf

 

Not saying SSD is not a great technology...just suggesting it might not be all plain sailing

 

Almost every decent laptop today is sold with an ssd. With ssd's getting cheaper and cheaper I don't think it's going to take long before hdd's are a thing of the past for notebooks. Not only do you have the speed advantage, but the size and power consumption advantage is huge for mobile devices. And this trend is combined with the trend of people using more and more mobile devices (laptops, but also tablets and smartphones). So I think there is a powerful force at work that is going to make hdd's a thing of the past for a large number of consumers. For desktop pc's I think hdd's will remain relevant a bit longer, but you also see here that they are getting demoted to a secondary role: part of their job is replaced by a small sdd as a boot disk, or some kind of hybrid solution (a nice example is the latest iMac).

How many users today go straight from 0 to a smart phone? They will never have a laptop or a PC. However, they bring more data to the party, which gets stored where? See attached.

So you are broadly correct, but there is a tradeoff. The data still sits on HDD….and SSD….and tape.

And don't underestimate how fast the ssd market is developing. Three years ago I was probably one of the first to buy an ssd for my desktop-pc: that cost me ~E2.4/GB. Today you buy a faster model for ~E0.6/GB. Looking at some historical prices for hdd's: it seems that some models today are even more expensive than three years ago. That's obviously good for the profit margins of WDC and other hdd manufactures today: but that's not a situation that can last.

Why not?  Price balances demand and supply. There are powerful forces at work suggesting demand will only grow (no guarantee) and supply? Two doors to knock on…..or more than 100 SSD doors.

 

 

I appreciate your input!!