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New Home Networking Solution from WDC

Zacks Equity Research

Technology companies are always on the look out to introduce innovative products and services to enhance their customer base and increase their business volume. This strategy has worked for many companies depending on the market they target.

Western Digital Corporation (WDC) is moving on same lines and recently unveiled a range of wireless home networking products, which are specially designed to accelerate movies, video and gaming, and  facilitate a premium high-definition entertainment experience.

The new wireless product range named My Net family includes powerful and user friendly routers. The routers will come equipped with FasTrack technology that will help detect entertainment traffic on the network and fast-forward it to gaming consoles, media players, smart TVs, tablets, smartphones, computers and other Wi-Fi connected devices.

We believe that the home networking market is set to grow, as more and more devices are getting connected on a single network. People are remotely controlling their home devices through wireless networks. Moreover, it is gaining acceptance among working people as they are able to control their in-house appliances using the Internet or other mobile devices.

As per the recently published U.S. Digital Consumer Report by Nielsen for the fourth quarter of 2011, 33.0% of consumers watch movies or TV shows using the Internet through subscriptions with Netflix or Hulu Plus. The volume of online entertainment, such as Internet video services, multi-player online gaming sites and live video chat services, combined with the explosive growth of tablets, smartphones and other devices are making the home network quite a hub of activity.

These new initiatives aside, Western Digital’s core HDD business has seen some ups and downs. The company was severely impacted by the Thailand floods, although the subsequent shortage in supply helped support stronger prices.

Moreover, the Hitachi deal is expected to strengthen its foothold in the data storage business. Although the company has been able to handle competition efficiently. Moreover, the new products offered by the company should serve as a positive catalyst.

Coupled with this, the news of share buybacks will stir investor sentiment, in our belief. But keeping in mind the high debt burden and competition from Seagate Technology plc (STX), we prefer to take a neutral stand for now.

Currently, Western Digital has a Zacks #3 Rank, implying a short-term Hold rating.

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