The traditional PC market got a boost Monday on news that Western Digital (NYSE:WDC) agreed to buy Hitachi Global Storage Technologies, for $4.3 billion in cash and stock.
There has been cause for concern for Western Digital and other hard drive manufacturers in the past year — hard disk drive storage has been a staple of the PC business for two decades, but the rise of reliable and cheap alternatives has been slowly eroding the necessity for the technology.
The hard drive’s decline represents a broader shift in how digital information is stored. Media players like Apple’s (NASDAQ:AAPL) iPod have switched away from hard disk drives in favor of smaller but lighter — not to mention less fragile — flash memory drives, and users of portable backup hard drives are better served by cheap USB flash drives.
The increasing popularity of Internet-based data storage (the “cloud”) for simple data like office documents through services like Google (NASDAQ:GOOG) Docs has also contributed to the hard drive’s winnowing.
Will consolidation improve the storage drive market and make Western Digital a stronger long-term investment? As Wedbush analyst Kaushik Roy said on Monday, “Industry consolidation will most likely create a less intense pricing environment. And thus gross margins of the overall industry should improve.” In 2011 then, Western Digital and others, like Seagate (NYSE:STX) should feel a bit more secure.
The doomsaying that surrounds the PC market seems to be premature as well. A study by RBC Capital analyst Mike Abramsky published last Thursday at Business Insider shows the tablet PC market will still be playing catchup to PCs for several years.
There were 1.3 billion PC owners in the world as of the end of 2010. Abramsky predicts that the tablet market will grow to around 400 million users y 2014. Even with the rise in popularity of PCs without hard disk drives like Apple’s MacBook Air, those devices are still too expensive to broadly replace traditional pre-assembled HDD-equipped laptops and PCs in the consumer market.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
