Growth in Drive TAM and Shipment of Higher Capacity Mix Propel Data Storage Space: A Wall Street Transcript Interview with Mark Miller, Senior Research Analyst in the Enterprise Hardware Segment of the Technology Sector for the Noble Financial Group, Inc.

Wall Street Transcript

67 WALL STREET, New York - February 19, 2014 - The Wall Street Transcript has just published its Data Hosting Centers and Data Storage Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Data Hosting Centers - Flash Memory - Cloud Computing Secular Trends - Data Center REITS - Colocation, Managed Hosting and Cloud Computing - International Enterprise and Consumer Demand - Mobile Computing - Infrastructure Upgrades and Consolidation Activity

Companies include: Seagate Technology (STX), Western Digital Corp. (WDC), Intevac Inc. (IVAC), Hutchinson Technology Inc. (HTCH), Intel Corporation (INTC), STEC, Inc. (STEC), SanDisk Corp. (SNDK), Xyratex Ltd. (XRTX)

In the following excerpt from the Data Hosting Centers and Data Storage Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Where are you focusing these days in terms of your coverage universe?

Mr. Miller: Our focus in the storage space has always been the disk drive firms. I've covered them for 14 years, and I used to work in the industry. The firms I cover are Seagate (STX) and Western Digital (WDC), Intevac (IVAC) and Hutchinson (HTCH). Hutchinson supplies suspension assemblies to the drive guys, and Intevac produces sputtering equipment for the deposition of the magnetic media on the hard disk.

TWST: How would you describe current analyst and investor sentiment on the disk drive space right now?

Mr. Miller: The stocks went to all-time highs within the last month for Seagate and Western Digital. About two-thirds of the analysts were neutral or negative on Seagate, and there was a significant number who were neutral or negative on Western Digital, so the investors have a better opinion than some of the analysts.

TWST: When we spoke last fall, Seagate and Western Digital had at that time recently experienced all-time highs and had reported to the upside. From the most recent quarterly earnings results, what key points or themes stood out for you?

Mr. Miller: I think the December reports were mixed in that Western Digital came at a $0.11 upside, and Seagate missed by $0.06. But the miss was due to higher opex, which surprisingly climbed from 13.6% of sales to 14.2% of sales. So that was a surprise, and that was most of the miss.

It was mainly due to deferred compensation for Seagate, so that's certainly a fixable and a forgivable type of miss. I don't think investors are real happy, because it seemed to have taken Seagate down more than Western Digital. However, both firms' guidance for the March quarter was somewhat light, but they both indicated at that time that the March quarter was off to a solid start.

I think the things people have been focusing on are these: The drive TAM, which surprised people, has been growing. Due to the growth in tablets, it went from 170 million units before the flood down to 133, and now the TAM is up to 142 million units, so it's grown two straight quarters. I think that's good news for investors. Both Intel (INTC) and Western Digital indicated they were seeing some signs of stabilization in the PC market. The other thing is margins continue to be holding up at the high end of their historical rates. So those were two of the concerns investors had about Seagate and Western Digital.

The third thing is that they continue to ship a higher-capacity mix. Capacity per drive increased 25% over the last year for both Seagate and Western Digital. That's driving somewhat higher ASPs and a higher mix. So all these factors are positive...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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