Hard disk drive (HDD) manufacturer Western Digital Corp. WDC recently declared that its subsidiary Hitachi Global Storage Technologies (HGST) has closed the acquisition of Amplidata. The company specializes in developing object-based software defined storage for both public and private cloud data centers.
Shared History
On Mar 3, 2015, Western Digital signed a definitive agreement to take over Amplidata for an undisclosed amount. The acquisition aimed at making Western Digital a more customer-focused storage company, with significant operational scale and a product suite that would make it more competitive in the international market.
Prior to the acquisition, Amplidata was selected by HGST as a combined development companion for the HGST Active Archive platform. The platform offers advance levels of storage efficiency in the most cost effective manner.
This acquisition was expected to enhance the existing storage capabilities of HGST and expand its participation in the cloud data center platforms. Also, it would aid Western Digital to meet the growing need in cloud storage system and enable closer integration of its supply and manufacturing chain.
Current Scenario
The deal indicates the ongoing consolidation in the storage market. Specifically, the hard drive industry is getting smaller. The disk drive market is highly competitive and has experienced drastic pricing pressure due to supply/demand volatility.
Moreover, hard disk companies might be vulnerable to additional pressures as customers such as tablet PC makers choose flash cards for storage purposes instead of the customary hard disks. The situation may compel companies to cut hard disk prices, which will hurt margins. In such a situation, companies can go for acquisitions to further consolidate the market, lower costs and alleviate competition.
We believe that the company is expected to gain good mileage from its cloud-based business. Cloud-based storage is gaining popularity as it allows users to access content through different gadgets such as smartphones, tablets and PCs.
To Conclude
We believe the acquisition will help Western Digital build on its capabilities in the cloud storage market. Western Digital expects the acquisition to make a favorable contribution to its non-GAAP earnings. Also, we believe that the company will maintain a positive net cash position.
Of course, neck-to-neck competition with hard drive and flash drive manufacturers that supply to companies like Apple Inc. AAPL and Nokia Corp. NOK should not be discounted will continue to impact its results near term.
This apart, we remain encouraged by the company’s announcement to expand its network attached storage (NAS) drives through the launch of four products, namely, My Cloud EX2100, My Cloud EX4100, My Cloud DL2100 and Cloud DL4100, targeting its small and medium business customer base.
Currently, Western Digital has a Zacks Rank #2 (Buy).
A better-ranked stock in the technology sector is Avago Technologies Ltd. AVGO, sporting a Zacks Rank #1 (Strong Buy).
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