Hard times and hard-drives have become almost synonymous over the past few years, but the worst might be over for Irvine’s Western Digital Corp., whose share price has gained nearly 70% since mid-February amid new signs of life in the segment. The stock rose about 50% from Monday to Thursday of last week alone.
While still far below its 1997 high of just over $48 per share, the company’s share price had risen to $7.56 at last Thursday’s close. Analysts are expecting near break-even results or modest earnings within the next two quarters, which would be the firm’s first profits in more than two years.
“It’s gratifying for the entire employee base, not just the executives,” said spokesman Bob Blair.
Much of the gain no doubt stems from last week’s “buy” recommendation, Western Dig’s first in years, from stock brokerage firm Robertson Stephens. Dane Lewis, an analyst for the firm, praised Western Digital’s Connex division, which makes network-attached storage devices.
The division is expected to soar as businesses become more data-centric and need quick and reliable access to information across their local-area and wide-area networks. NAS devices include a built-in server system that boosts performance and makes it easier to integrate the units into corporate networks.
Lewis said he believes Connex’s value,$700 million to $1 billion now,is not accurately reflected in Western Digital’s current market capitalization which stood at $838.7 million at Thursday’s close. He’s predicting the shares will reach $10 within the next 12 months.
Western Digital’s increase mirrors a similar recuperation among other hard-drive manufacturers in the past month, including Seagate Technology Inc., which rose from $47.50 to $66.56; Maxtor Corp., which rose from $6.88 to $12.75; and Quantum Corp., which rose from $4.50 to $10.56.
Robertson Stephens upgraded the other major hard-drive makers two days after changing its Western Digital recommendation, citing price stability and increased demand.
Maxtor’s announcement last week predicting better-than-expected earnings helped propel the hard-drive segment as a whole.
Though nearly everyone in the hard-drive sector had suffered amid fierce competition and a slowdown in PC sales in recent years, Western Digital had been hit particularly hard, posting nine straight quarters of losses totaling more than $900 million.
Several top-level executives have taken the reins in recent months, including chief executive Matthew Massengill and chairman Tom Pardun (who took over for the retiring Chuck Haggerty) and Terry Hopp as CFO. The company also appointed Bob Wilson to head the Connex division and Stephen Abely as the unit’s chief financial officer and vice president for finance.
And last year, the company shifted hard-drive production from Singapore to Malaysia, closing two of the company’s three manufacturing plants and laying off about 7,000 people without significant production cuts.
Blair said continued strength in PC sales and new consumer products such as digital video records, which use hard drives, should sustain growth throughout the year.
“The exciting thing is getting the core PC business back to cash-flow positive and continuing to invest in new businesses,” he said. “We are not getting out of the hard-drive business, but longer-term, the goal is to balance the business model a bit.” n
