Mark Miller, Senior Research Analyst at Noble Financial Group, Inc., Interviews with The Wall Street Transcript: Storage Demand to Grow at 30% CAGR Through 2015

Wall Street Transcript

67 WALL STREET, New York - February 11, 2013 - 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 and Equity Analysts. 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 - Internet Infrastructure Build - Big Data, PCIe Storage, Cloud Computing and the Virtual Desktop - Data Center REITs - Colocation, Managed Hosting and Cloud Computing - Data Center Expansion -

Companies include: Seagate Technology (STX), Western Digital Corp. (WDC), Hutchinson Technology Inc. (HTCH), Intevac Inc. (IVAC), Imation Corp. (IMN), 3M Co. (MMM), Coherent Inc. (COHR), Newport Corp. (NEWP), Rofin-Sinar Technologies Inc. (RSTI), IPG Photonics Corporation (IPGP), Intel Corporation (INTC), STEC, Inc. (STEC), SYNNEX Corp. (SNX), Dell Inc. (DELL), Cymer Inc. (CYMI), SanDisk Corp. (SNDK) and many more.

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: Are any of the companies that you cover adapting best to that move to the cloud?

Mr. Miller: Both Western Digital (WDC) and Seagate (STX) provide enterprise drives used in cloud storage. Seagate has about 55% share of the enterprise drive market. Margins of these drives are double or more than the margins of drives in a laptop PC. Both firms are also marketing solid state drives. I mean, the ironic thing for all the proponents of solid state drives is, just put up the one-year stock price chart of Seagate and Western Digital versus a solid state drive firm.

Obviously, it doesn't appear from these charts that investors are expecting solid state drives to take over the world anytime soon. If you look at the chart of STEC (STEC), Fusion-io (FIO) or OCZ Technology (OCZ), the stocks have not performed very well. That's another one of the paradoxes here. The drive firms are also responding to flash by shipping hybrid drives, which involve the use of flash chips for faster boot up in combination with a hard drive. Seagate has been pioneering the way, but Western Digital will start shipping hybrid drives by midyear. Two manufacturers could open up that market.

TWST: Are there any other industry trends or technological shifts that are important to note?

Mr. Miller: It's always pricing and margins, and that's the big discussion point. If you would listen to the bears, because demand is soft, they're expecting to have major price and margin erosion. That is not happening because you more or less have a drive duopoly. There is a third firm in the drive space, Toshiba (TYO:6502), which has 14% share, but they are not vertically integrated, which makes it hard for them to press the pricing issue compared to Seagate or Western Digital, both of which manufacture key drive components internally.

Pricing in the distribution channels was stable in the December quarter compared to down 5% in the previous quarter, and it fell 8% in each of the first two quarters of 2012. Margins are still high. Western Digital just reported its drive ASPs were unchanged sequentially, but that was in part due to a higher mix for them in the December quarter. Seagate's drive ASPs fell by $1.80 last quarter, but they are still...

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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