Morningstar | We're Maintaining Our Chipmaker FVEs, as We Don't Yet Foresee a Tech Cold War Despite the Huawei Ban
Western Digital is one of two leaders in the hard disk drive, or HDD, market and with the purchase of SanDisk in 2016 has become a significant player within the NAND flash market. The firm has invested significant resources into successfully negotiating the technological transition from HDD to flash storage. SSDs have important performance benefits versus the older spinning disc media and as a result, HDDs have lost their luster for both PCs and servers. HDDs currently have superior cost metrics and higher capacities, but SSDs have been closing these gaps and quickly limiting the number of use cases for HDDs. We believe Western Digital has significant competitive advantages within the HDD market but these are unlikely to generate excess returns on capital as that storage solution continues to decline. In sum, we do not believe that Western Digital has a moat capable of generating returns about the cost of capital. We believe the secular headwinds against HDD demand in PCs will continue. With a lower total cost of ownership from SSD products in many PC applications, we anticipate there will be an ongoing decline in annual HDD sales as SSDs increase share and as PC unit sales generally decline. HDDs will remain a significant component of the storage environment to accommodate the business-critical storage needs of enterprises, but SSDs have already made significant headway in the enterprise market by taking a major portion of the share in mission critical applications. While Western Digital’s SSD capabilities give it the potential ability to curb overall HDD declines within certain enterprise applications, thus far, we believe Western Digital has been unable to translate its history within enterprise storage to share gains in the SSD enterprise market. Western Digital maintains a joint venture (Flash Ventures) with Toshiba to collaborate in the development and manufacturing of flash memory wafers. That said, while flash competitor Samsung does have a moat, we do not believe moats are easily developed in the flash market due to the commoditized nature of that technology, the capital intensity, and the highly cyclical nature of the semiconductor market.Western Digital is a developer, manufacturer, and provider of data storage devices and solutions. The company's portfolio of technology and products address the following markets: Client Devices, which consist of hard disk drives (HDDs) and solid state drives (SSDs) for computing devices, flash-based embedded storage products, and flash-based memory wafers and components; Data Center Devices and Solutions, which consist of enterprise HDDs and enterprise SSDs, data center software and system solutions; and Client Solutions, which consist of HDDs and SSDs embedded into external storage products and removable flash-based products, such as cards, universal serial bus flash drives and wireless drives.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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