Western Digital Corporation (WDC) is a developer and manufacturer of storage solutions and hard drives. It has the second largest market share in the hard drive industry at 42-45%, behind Seagate. While the hard drive industry is projected to grow 11% annually through 2017, WDC faced a 13% decline in revenue in 2013 due to longer PC refresh cycles and increased tablet use. WDC has acquired several companies to expand and has manufacturing facilities in Malaysia and Thailand to cut costs. However, the hard drive industry is highly competitive and substitutable, with Seagate and new entrants posing threats to WDC's market share.

1. Western Digital
Corporation
(WDC)
Gustav G.
Dominic P.

2. Company Description
• Western Digital Corporation (WDC) is a developer
and manufacturer of storage solutions, which
enables people to create, manage, experience and
preserve digital content. The Company designs and
makes storage devices and home entertainment
products under the HGST, WD and G-Technology
brands. The Company's principal products are hard
drives that use one or more rotating magnetic disks
(magnetic media) to store and allow fast access to
data. Hard drives are primary storage medium for
digital content.

3. Western Digital Corporation
(WDC)
Price: $87.47
52 week High: $103.51
52 week Low: $68.14
2012 2013 2014
EPS 6.58 3.98 6.68
P/E 6.4 20.7 13
S&P EPS 98 102 103
S&P P/E 14.9 14.3 13.3
Relative P/E

4. Industry Overview
• Western Digital operates primarily in hard drive
magnetic media, which is a $33 billion industry.
There was a 4% decline in the industry in 2013 due
to longer refresh cycles for PCs. However, there's
an expectancy of growth because of new consumer
electronics. A new generation of ultra-thin
notebook PCs using hybrid hard drives could help
with the recovery. Western Digital is estimated to
have 42-45% of the hybrid hard drive market share.
The hard drive industry is forecasted to to have an
annualized growth of 11% through 2017. Major
players: Western Digital (WDC), and Seagate
Technology PLC (STX), and Toshiba (TOSBF).

5. Industry Overview
48%
41%
11%
HDD Market Sgares 2014
WD/Hitachi
Seagate/Samsung
Other

6. Strengths
• It has the second position in drive market industry,
with the highest return on equity
• It has huge network worldwide, with presence in
17 countries
• The company operates its global business through
two independent subsidiaries: Hitachi Global
Storage Technologies Holdings Pte Ltd and Western
Digital Corporation
• Has completed acquisition of sTec, Inc. in
September 2013 and has also completed
acquisition of Virident Systems, Inc.

7. Weaknesses
• Worldwide revenue for hard disk drives
shipments have fallen 13% in 2013 from 2012
due to tight controls of inventory. The longer
refresh cycles for PCs is allowing consumers to
go longer without a new product. Consumer
are now purchasing tablet computers rather
than a traditional PC. The high cost of
research and development is also a factor.

8. Opportunities
• Western Digital has made significant
acquisitions, and has strategic intention of
integrating its research development activities
in the US and manufacturing to Malaysia and
Thailand, which will be a cost effective model.
The company has also launched an
environmentally GreenPower family of hard
drives.
• Increase demand for SDDs
• New technologies available from Hitachi

9. Threats
• In the hard disk drive industry, suppliers compete
for sale of hard disk drives to a limited number of
large consumers. Most of the products in the
industry are highly substitutable, which poses a
difficulties in product differentiation. The
company’s products are differentiated based on
operational excellence, high product quality and
reliability, and designing and incorporating into
hard drives desirable product performance
attributes rather than on storage capacity, buffer
size or time-to-time market.
• Losing market share to Segate after the acquisition
of Samsung.

10. Threats of New Entrants
• Entrance of a new company in this industry
will be relatively hard. Western Digital,
Seagate, and Toshiba operates 98% of the
market share. Consumers are also extremely
loyal to the three top companies.

11. Threat of Substitute Products
• Substitute products are necessary as older
technology products reach end-life and are no
longer available on the market. Hewlett Packard
(HP) currently has on the market a substitute hard
disk drive qualification (HDDQ). The difference
between the original and substitute product may
be in speed, capacity, interface, or all of these. HP
is also able to offer a three-year pre-failure
warranty on the substitute SCSI hard disk drives.
• Popularity in tablets had an effect but not a
significant one in the decline of sales.

12. Bargaining Power of Suppliers
• Suppliers have a medium degree of power
where manufacturers are highly dependent on
getting supplies in a timely manner to meet
demand. As manufacturers continue to make
acquisitions of companies within their supply
chain they will become better vertically
integrated and depend less on outside
suppliers.

13. Bargaining Power of Suppliers
• Buyers have a high degree of power in this
industry as most companies are forced to
compete on price. The products each firm sell
are not that differentiated from competitors
so the main reason to purchase a product is
price. Also, original equipment manufacturer
(OEM) make up such a large portion of WD’s
sales, over 50%, so they can easily switch to
another drive. Internal drives between
companies are very similar so switching costs
would be relatively low for an OEM.

14. Intensity of Competitive Rivalry
• With so much consolidation happening in the
industry competition is increasing. As the firms get
bigger they are able to take advantage of
economies of scale and charge lower prices. This
gives incentives for OEMs to shift to the cheapest
drive manufacturer. Such downward price pressure
makes this industry very competitive. Also,
currently Seagate and WD both have very little in
terms of solid-state drives (SSD) and Seagate’s
acquisition of Samsung will put pressure on WD to
produce new SSDs.