The Floods Didn't Kill Western Digital at All

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Three months ago, Western Digital (NYS: WDC) was getting swept away by the floodwaters in Bangkok. The company took much more damage from that disaster than archrival Seagate Technology (NAS: STX) . Surely the financial damage would be equally horrific.

Or maybe not.

Last night's second-quarter report destroyed Wall Street's earnings and revenue targets. Sure, sales fell 19% year over year to just $2 billion, but the sudden shortage of hard drives drove up unit prices dramatically. Given the never-ending quest for lower production costs, gross profits jumped 36%.

If you back out the $199 million charge to handle flood damages, you'd actually get 52% higher net income. The repairs are surely a one-time item, but then again, so is the shortage-driven pricing windfall. Let's just call this math exercise a little thought experiment.

That said, it will take another three quarters to get the factories back to ship-shape. In that span, Seagate gets to enjoy an operational advantage by selling drives at shortage-boosted prices but also in high volume. Western Digital's products sold at nearly 50% higher prices, both year over year and compared with the previous quarter.

Elsewhere, inflated hard-drive prices present an opportunity for solid-state drives to gain market share. A huge price difference is often seen as the main thing holding back a full-on revolution here. The price difference remains huge, even under these conditions, but every change makes a difference. Look for confirmation (or rebuttal) of this theory when STEC (NAS: STEC) reports earnings in February and SanDisk (NAS: SNDK) on Wednesday.

Some technology trends work in favor of the big and cheap magnetic disk drives that are Western Digital's bread and butter. In a special report penned by The Fool's finest analysts, you'll find the only stock you need to profit from the new technology revolution in Big Data and business intelligence. The report is totally free but it won't be available much longer, so get your copy right away.

At the time this article was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. The Motley Fool owns shares of Western Digital. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. We have adisclosure policy.

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