Western Digital, encountering the same adverse headwinds as Seagate, has emerged ahead.
In its fourth quarter (Q4) of fiscal 2011, WD reported revenues of $2.4bn, marginally above Q4 2010's $2.38bn. Net income fell from Q4 2010's $265m to $158m, hindered by $35m of costs associated with the Hitachi GST acquisition.
For the full year WD revenues were $9.53bn, compared to $9.85 in 2010, and net income was $726m, down almost half on 2010's $1.38bn.
This Q4 and full year 2011 pattern of results paralleled Seagate's, although WD's quarterly net income fell less (41 per cent) than Seagate's (69 per cent). WD's annual income decreased 48 per cent year-on-year, while Seagate's went down by 68 per cent.
WD faced the same rare earth metal price rises as Seagate, and the same economic environment, but it did not, so to speak, shoot itself in the foot with new product manufacturing ramp issues.
It has introduced a 1TB, 2.5-inch Scorpio Blue drive with 500GB/platter technology and more products using this technology will come soon.
Turning to the future, CEO John Coyne was asked about the timing of energy-assisted recording technologies such as HAMR, and said: "I think that's a difficult technology. We ... the industry is demonstrating the technology and has been for several years.
"But typically, in this kind of technology area, when you see the announcements of the new technology performing at the current level of the mature technology, you can add three years to volume availability of that new technology. And we have not yet reached the point of equivalence to the current technology in the lab demos that are demonstrating the new technology. So it's at least three years out for mass volume deployment."
That means 2014 with, perhaps, a 2013 introduction.
The sea and stronger demand
One unexpected benefit of the Japanese earthquake was that WD saw stronger demand than it had anticipated because of increased adoption of sea freight in the PC supply chain, which countered traditionally lower seasonal demand in the quarter.
COO Tim Leyden amplified this sea freight point. There was a "margin focus across the PC market where lower financing and inventory-carrying costs encouraged increased use of ocean freight, leading to pull-ins of built schedules versus historical seasonal patterns," he said. "And fear of supply disruption from the Japan aftermath led to pull-forwards by OEM customers to create inventory buffer on the basis that it is better to be looking at it than looking for it."
WD is seeing stronger demand next year. Coyne said: "We believe that 2012 could be a stronger period for the industry and for WD for several reasons: an acceleration of the commercial PC refresh as part of an overall macro reinvestment cycle; the potential for better consumer confidence translating into stronger discretionary spending; [and] the planned launch of redesigned, feature-rich PCs enabled by Windows 8."
He also mentioned "the massive amounts of content being generated on the client and in the cloud."
Rare earth problem
Concerning the rare earth problem, the earnings call transcript has Coyne saying: "We've worked with our supply chain to moderate some of the influence of the raw material increases. We have not fully counterveiled those pressures, and so we've gone to our customers and we've sought their help in reflecting, in our pricing, the cost increase which we could not offset in other areas."
He sees alternative sources of supply, such as Australia, opening up because increased rare earth metal prices makes previously non-viable mines profitable once again.
Opportunity and outlook
The Hitachi GST acquisition is on track for a fourth quarter, 2011 close, with the various regulatory approvals needed having either been gained or being on track.
Coyne sees an opportunity in the home, where consumers are storing more data but not backing it up. He said: "Our research into that market tells us that we still haven't effectively publicised or proselytised the backup story. There's still way, way too many people out there totally exposed in terms of backup... if we can do an effective marketing job of convincing people that not only do they need that incremental storage, but they need to back it all up, then we have an even brighter future out there to go turn that opportunity into financial performance."
The outlook, according to CFO Wolfgang Nickl, is for the next September quarter to deliver revenues "in the range from $2.425bn to $2.525bn; [and] earnings per share of between $0.90 and $1 ... which excludes [HGST] acquisition-related expenses."
WD is managing its business better than Seagate. It won't get an immediate boost from integrating Hitachi GST, as the benefits from that acquisition will take a number of years to flow through. One issue that might conceivably exist is that Hitachi GST's SSD is being developed by Intel, which, of course, sells its own SSDs.
WD also could decide it needs more control over its SSD technology and look to build the technology itself rather than relying on Intel. ®