Shrinking PC Demand Won't Matter for Seagate

Analysts and pundits often like to call the demise of a certain company or industry. I suppose it's because it gives them a certain air of authority if they can prophesize with conviction that things are about to collapse. For years now, this has been happening with the pending death of the PC industry. While the numbers certainly have slowed, some companies involved in the PC business have been unfairly pegged as doomed. Hard-drive manufacturer Seagate Technology (NAS: STX) has been busy spitting in the face of these prophets while continuing to build a stronger and stronger business.

Hark! The PC is dead!
We know. Really, we do. PCs are not long for this world. They will, in time, enter the realm of beepers and 35 mm cameras. But why do certain analysts and CNBC squawk boxers keep saying Seagate is a dead business? Have they not been around for the 200% gain in stock price over the last year, which occurred despite natural disasters disrupting supply chains and the constant talk of PC-ocalypse?

Make no mistake, investors: Seagate is alive and well, regardless of diminishing demand for PCs. In the last month, investment banks and research shops have issued downgrade upon downgrade of Seagate and competitor Western Digital (NAS: WDC) . Is it because of deteriorating fundamentals? Not particularly. The downgrades are on speculation that Seagate and Western Digital management teams have made no effort to position their companies to remain relevant in a post-PC world, which is silly.

The truth is, Seagate is well diversified and undervalued, making it a prime pick for the contrarian investor.

The rise of the tablet into the clouds
Seagate does not benefit directly from the increasing prevalence of tablets and smart phones. As you can imagine, the companies' hard-disk drives just don't fit in those products. But the company can benefit in a major way from cloud usage. (I know, I'm tired of hearing about the cloud, too.)

Many believe Seagate continues to push its HDD business even in the face of falling demand, but just take a look at the conference calls and see what management is spending its time talking about. In the third-quarter call, the cloud was just as big of a talking point as any other subject. In fact, the company pointed to its growth prospects: it singles out its rapid build-out of cloud infrastructure as a main growth driver in the coming years. So why do people think this is a dying business?

Solid states
The other oft-mentioned killer for Seagate is the introduction of solid-state drives. As of now, they are far too expensive to completely replace normal HDDs in most devices, but I agree that one day the flash drives will take over the business. For the time being, though, DVRs, medical imaging devices, gaming consoles, and the relic PCs will still use HDDs -- likely from Seagate and a handful of other manufacturers.

Some more intelligent speculation has centered on the subject of Seagate acquiring an SSD company to increase its exposure in that arena. Priced-for-death SSD manufacturer OCZ Technology (NAS: OCZ) , which has fallen from its February high of $9.40 per share to around $3.30 today, has been mentioned again and again as a target for Seagate. OCZ has had serious cash flow issues even with very strong demand. The company is itself a very cheap stock and could be a phenomenal buy for Seagate at this price, while also giving it that SSD exposure everyone seems to want.

I am not much of a tech investor, but I strongly believe Seagate is a no-brainer. For a look at a tech stock our analysts here at the Fool are believe is poised for major gains, check out this special free report.

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Fool contributor Michael Lewis owns none of the stocks mentioned above. You can follow him on Twitter @MikeyLewy. The Motley Fool owns shares of Western Digital. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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