Can Seagate Stock Overcome the Death of PCs?


With its status as one of the giants of the hard-disk drive industry, Seagate Technology finds itself facing the challenge of dealing with falling PC sales. Yet even as other PC-centered companies have seen their share prices plunge, Seagate stock has risen to all-time highs going back to its IPO a decade ago. Let's take a look at how Seagate has moved beyond PC worries and what lies ahead for the storage-technology company.

What's behind Seagate's success?
Seagate isn't the most glamorous of technology companies, but it has played a key role in facilitating the technological advances that have led to many of the products that billions of people around the world take for granted today. Throughout its history, Seagate has provided data storage solutions for its customers, with its hard-disk drives having been the mainstay of PC storage for decades. Over time, the company has pushed hard-drive technology forward by leaps and bounds, and as computing has grown ever more mobile, Seagate has incorporated advances like portable hard drives with built-in Wi-Fi networks to facilitate data exchange for users on the go.

The concern that most investors have, though, is that the steady decline in PC sales threatens Seagate's traditional strength in providing peripherals for PC buyers. Yet at least so far, Seagate has arguably benefited from the weak prospects for PC demand. Consolidation in the industry has left it and rival Western Digital as the two main survivors in the hard-drive market. As long as demand for those drives exists, Seagate will hold onto its share of the profits from the industry, supporting its stock price.

Will SSDs kill the HDD stars?
The primary concern among skeptics, though, is whether that hard-drive demand is sustainable. Rather than relying on PCs, Seagate has used the steady decline in PC sales as impetus to explore new strategic directions with its storage technology. The rise in use of solid-state drives in mobile devices -- which offer much faster data access but with added cost -- poses a long-term threat to the company, and the success of solid-state drive makers has made clear just how important they'll be in advancing technological innovation, especially in the mobile realm. The trend initially brought obscure small players Fusion-io and OCZ Technology into the spotlight, but the more-established giants SanDisk and Micron Technology have become much more important as they use their memory expertise to advance their own solid-state lines. SanDisk and Micron have two ways to win from the trend, as they can sell the memory other solid-state drive makers need as well as vertically integrating their own SSD production.

Seagate, though, has chosen a middle path. By marrying its traditional hard-drive technology with newer and faster solid-state drives, Seagate gives customers options and various price points from which they can choose the best and most cost-effective storage solutions. These hybrid solid-state hard drives offer greater capacity than pure solid-state drives at more attractive prices but are also smaller than traditional hard drives. Western Digital has also gotten in on the hybrid drive trend, teaming up with SanDisk to produce hybrids of their own. Seagate has also moved into the pure solid-state drive market with its own solid-state drives.

Moreover, it's important to remember that even traditional hard drives aren't likely to go away anytime soon. The massive amounts of data that companies are collecting through their recent cloud-computing initiatives presents the companies collecting that data with the need to store and analyze it, but often, speed is less important than cost-effectiveness in handling all the information they collect. Technological advances like Western Digital's use of helium to improve hard-drive efficiency should lengthen the viability of the technology. Ever-larger traditional hard drives remain the clear choice for non-mission-critical data, and Seagate therefore stands to make up for hard-drive sales lost due to declining PC demand.

Other applications, including digital video recorders and medical imaging devices, will also likely continue to use hard-disk drives into the future. Even the soon-to-be-released newest-generation gaming consoles from the popular Xbox and PlayStation lines will include standard hard drives.

The big buyer of Seagate stock
Perhaps the best argument favoring Seagate's investment prospects is the fact that the company itself is using spare cash to do stock buybacks. Over the past two years, Seagate has stepped up its buybacks considerably, repurchasing more than $4 billion in shares since mid-2011 -- more than triple the amount Western Digital has spent.

Seagate will face challenges in holding solid-state specialists at bay while making advances of its own on the technology front. But with support from buybacks, Seagate stock has plenty of room for further gains well into the future.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Western Digital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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