Why I love STX

Thursday, March 16, 2006

Seagate = Hard Drives
Hard Drives...needed for 1st Gen PVRs (e.g. Tivo, Windows Media Center) and future (High Def) generations
Hard Drives...needed for personal music players that have lots of storage (or who add video)
Hard Drives...needed for advanced gaming machines
Hard Drives...needed for all the music and/or videos you're downloading
Hard Drives...needed for all those 5MP digital pictures you're taking

Advanced gaming machines, personal music players, digital photography, peer-to-peer downloading, PVRs...all are examples of technologies that are expanding rapidly and are at various (leading) points of the technology adoption curve. These technologies are using more and more data, and the technology is quickly becoming mainstream.

The data storage industry is dominated by EMC, but EMC is mostly a business storage deal. Other major consumer data storage businesses are Western Digital and Maxtor. Seagate is buying Maxtor, and is cheaper (in terms of P/E) than Western Digital (in my opinion, for no good reason).

Bottom line is that this company is doing the right things, positioned well in an expanding industry, and should enjoy higher than average shareholder returns for the next several years. Major threats? Western digital drives prices down and kills the industry, but they can still lower margins and increase turns in an industry that's expanding so rapidly. My biggest concern would be optical/holographic technology that provides much higher capacities in the same size form factor, but I believe we're still several years out from that, giving Seagate an opportunity to develop the technology themselves or purchase an emerging player in that market.

Emil's Wicked Cool Blog