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Western Digital Looks to Flash for the Future

Being a leader in the declining hard disk drive market isn’t enough for a moat.

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After taking a fresh look at hard disk drive manufacturer  Western Digital (WDC), we are maintaining our no-moat and negative moat trend ratings. We have decreased our fair value estimate to $75 per share from $84 but note that the shares are still trading at a significant discount to our valuation.

Western Digital is one of two leaders in the hard disk drive market and, with the purchase of SanDisk in 2016, has become a significant player in the NAND flash market. The company has invested significant resources in successfully negotiating the technological transition from HDD to flash storage. Solid-state drives have important performance benefits versus older spinning disc media, and as a result, HDDs have lost their luster for both PCs and servers. HDDs currently have superior cost metrics and higher capacities, but SSDs have been closing these gaps and quickly limiting the number of use cases for HDDs. We believe Western Digital has significant competitive advantages in the HDD market, but these are unlikely to generate excess returns on capital as that storage solution continues to decline.

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Seth Sherwood does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.