The PC market is slowing, and the data shows it. According to industry research firm International Data Corp., or IDC, worldwide PC shipments totaled 76.3 million units in the first quarter of 2013. That’s down 13.9% compared to the same quarter last year 2012 and far worse than the forecast decline of 7.7%. Now, there are a lot of reasons why we’ve seen declining metrics in the PC space, but the main reasons are the rise of PC alternatives such as smartphones, tablet computers and cloud computing.
So, with this in mind, why would anyone want to buy a company that is best known for making digital hard drives that go into PCs?
Well, the short answer is because it can make you a lot of money.
That’s precisely what’s been happening in Western Digital Corp. (NASDAQ:WDC). The stalwart hard drive maker has been making PC components since 1970, so it’s seen more than its share of changes in the industry. In fact, recent metrics show WDC is having no problem adjusting to the PC slowdown.
On Wednesday, Western Digital reported adjusted fiscal Q3 EPS of $2.10, well above the forecast for EPS of $1.77. Revenue also was higher, coming in at $3.76 billion, which was a jump of 24% over the same quarter a year ago.
Yet perhaps the best news for WDC shares was its upbeat fiscal Q4 forecast.
The Irvine, Calif.-based company forecast fourth-quarter earnings of $1.65 to $1.80 per share on revenue of $3.55 billion to $3.65 billion. The upper end of the range is better than consensus forecast for EPS of $1.74 per share on revenue of $3.58 billion. The strong Q3 showing, as well as the upbeat Q4 forecast, shows just how nimble WDC is. You see, rather than just sitting back and accepting the slowing PC market, the company has taken advantage of the increased demand for data storage in the cloud.
In a Reuters story covering WDC’s earnings, Noble Financial Capital Markets analyst Mark Miller said, “It appears the hard drive business is not suffering as much. That is because of the growth of the cloud and digital data.”
Click to EnlargeBingo!
As for the stock price, 2013 has been a very good year so far for WDC. Shares have spiked over 21% year to date, and given the strong numbers expected in fiscal Q4, there’s a very strong chance that WDC will continue riding this strong bullish wave.
I suspect that this stock can go up another 10%-15% over the next several months, and that’s more than enough reason to forget the PC slump and buy WDC.
At the time of publication, Jim Woods did not hold a position in any of the stocks mentioned here.