Seagate Technology is the world's largest hard drive developer and manufacturer. You know what a hard drive is. C'mon, sure you do. It's the mechanical storage device that we all have in our personal computers and laptops. It's the thing that makes all the mysterious noises when Windows boots up and stores all the programs that are held in our computers. It's that damnable device that makes us swear when it crashes and we forgot to back up our data and other sensitive information.
Is Seagate a good company in which to invest? In view of the huge growth of digital data for the foreseeable future and Seagate’s market position, the answer is yes.
Let's see where they stand in terms of products, markets, competition,
future, and its key fundamentals.
First, products and markets:
Seagate Technology participates in the computer and home entertainment markets with 3.5 disk systems that include the personal computers, both desk top and laptop units, and higher performing systems.
Seagate sells to consumer electronics manufacturers with drives containing 1 inch and 2.5 inch disks meant for systems in small enclosures such as games and cameras.
Another market for Seagate is the large business or enterprise systems area. These hard drive systems are in the large gigabyte range and are optimized for low cost and lower power consumption.
Finally, Seagate sells hard drive assemblies to external developers and manufacturers of back-up storage systems for desk top and laptop computers.
The storage market, as mentioned above, will grow swiftly as more gadgets
are developed, particularly in the consumer and home markets. Web sites and software hosted on the Web are
expanding, and all are downloaded to game boxes or personal computers in
digital form. Seagate recently delivered its one billionth hard drive and
forecasted they would ship in excess of 5 million drives within five years.
Now their competition:
Seagate is 50 percent larger in sales than their nearest competitor, Western
Digital, and has a larger portion of its sales coming from overseas than does
Western Digital. This increases profit levels as a result of the weaker
dollar relative to foreign currencies.
Seagate's future:
As with all successful technology companies, once market superiority is achieved, product development and technology enhancements never stop. And so it is with Seagate Technology.
A hard disk (the memory storage element inside a hard drive assembly) contains circular tracks on its surface. The tracks contain tiny magnetic bubbles that are polarized into the digital format of either ones or zeros. The bubbles are flat and sit side by side on the tracks, hence their size determines how many bits of information can be stored on a track. Smaller bubbles equate to more bubbles on a given length of track. The more bubbles, the more bits of digital information that can be crammed on a track resulting in a lower cost-per-bit of stored information.
Seagate recently announced that they have developed a process that places the bubbles on their side. Now bubbles can be placed closer to one another on a track, greatly increasing the number of bubbles on a track as well as the capacity of a disk manufactured with this new technology. Seagate will be able to offer a hard drive with more capacity and a lower cost per stored byte than their competition. Western Digital is developing a similar technology but is behind Seagate in bringing this new manufacturing technology to market.
With the manufacturing technology advances addressed in the above paragraph,
Seagate is in a position to grow both market share and profits in future
years. Their technology improvements, implemented ahead of their nearest
competitor, are also an indicator of higher profits in coming years as Western
Digital tries to catch up with a similar cost effective technology.
Key fundamentals:
Seagate's stock closed today at $20.29, which is at the lower end of its 52-week range, reflecting the slowing of the economy and the computer and gaming markets. The dividend yield is 2.3 percent, which for a technology company is decent. Seagate also has a stock repurchase program in place.
With a forward P/E ratio of 8.01 (low for a technology company) and a PEG
(P/E ratio divided by the forecasted yearly growth rate) of 0.56 (less than one
indicates a stock is undervalued), the company could be a good long term
investment. One caveat: The numbers reflect a fiscal year-end of June of
2007, so it would be wise to see what the numbers reflect at the end of the
current fiscal year, ending this month on
June 30, 2008.
None the less, with the movement toward more and more digital content in much of what we do, the demand for storage in the form of hard drives places Seagate in a great position to take advantage of this growth market.
Copyright by Bill
Durrenberger June 20, 20, 2008. All rights reserved.
Disclaimer: The statements and information presented in this article reflect
the opinions of the author and do not constitute a recommendation to buy or
sell specific securities .Before purchase of any investment, the buyer should
consult a financial adviser.
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