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Seagate Technology Public Limited Company Message Board

  • chiduravinci chiduravinci Apr 26, 2012 2:34 PM Flag

    WD Earnings

    To summarize where I think this Board is at on the soon to issue quarterly WD report: we all think that they will exceed expectations both as to revenue and earnings significantly. There is a bit of divergence around where their average price and gross margin will be behind those headlines, but the important message for the Street will be both of the remaining drive companies are growing revenues and earnings at the same time so nobody is stealing anyone else's lunch.

    Now of course that may moderate when the industry is back producing at full capacity for a few quarters long enough to refill backlog and inventory, but, even then, there is significant enough growth in petabyte demand to support growing revenues and earnings with relatively stable market shares and product pricing. A vision of the new world if sound minds are at work in production planning.

    A remaining chestnut is the question of the relative value between WD and STX if both companies are properly valued. Not that WD has the high enterprise assets of HGST, there should be less of a premium accorded to STX and, over time, as gatrz has suggested, each company's revenues should have equivalent blended profitability. I would then expect the market caps and enterprise values to converge pretty closely.

    This does suggest that WD has some room to catch up when they emerge from the flood/HGST integration miasma and initiate a dividend/stock repurchase effort that puts it on a level playing field with STX. In the meantime, both companies have plenty of room to move higher by at least 50% IMO.

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