Is Seagate Technologies or Western Digital a Better Buy? 1 Metric Says It All

Over a 16-month period, one of these two hard disk drive giants has established itself as a clear leader.

Jul 22, 2014 at 8:00PM

Seagate Technologies (NASDAQ:STX) and Western Digital (NASDAQ:WDC) are undoubtedly the two largest manufacturers and sellers of hard disk drives, or HDDs. On the surface, the two companies look nearly identical, creating storage devices that are used in everything from PCs, laptops, DVRs, home entertainment centers, hyperscale data centers, and the cloud. However, despite the combined leaders controlling 85% of the HDD space, one specific metric will identify the best investment opportunity.

1 metric says it all
Five years ago, both Seagate and Western Digital created nearly all of their revenue from PC-related applications. But, with falling PC and laptop sales, both companies have evolved, selling storage devices for smartphones and tablets, and benefiting from the enormous amounts of storage needed in cloud computing.

Nonetheless, the bulk of both companies' revenue still comes from HDDs, as solid state drives are growing fast, but are less than 5% of total revenue. Hence, the combined revenue of nearly $29 billion over the last 12 months created by Western Digital and Seagate is a near-perfect illustration of the HDD market, or at least 85% of it.

With that said, there is a constant debate surrounding which company is best, and while analysts look at P/E ratios, dividends, and operating margins, the best indicator of value lies in the HDD market itself, and the market share of each respected company, as seen below.


Western Digital

Seagate Technologies

January 2013



July 2013



January 2014



July 2014



Above, you can see the HDD market share for both Seagate Technologies and Western Digital over an 18-month span. One thing is clearly evident -- Western Digital has consistently stolen market share from its peer.

While Western Digital's market share is unknown as of July 2014, due to the company not yet announcing second-quarter earnings, Seagate's admission of a 39% share almost guarantees that Western Digital's share has increased, yet again. Therefore, at hand is a 600-basis-point loss in market share for Seagate Technologies, which begs the question of how any investor could find it more attractive than Western Digital?

The Western Digital difference
Why has Western Digital been able to steal the HDD market right out from under Seagate's feet? The answer lies in the product itself. According to online backup provider Blackblaze, Western Digital's drives have a 94.8% survival rate at 36 months. Meanwhile, Seagate's drives have just a 73.5% survival rate over the same duration.

Thus, Western Digital's success may be tied to reliability, or disgruntled Seagate customers who switch to Western Digital products after experiencing a high rate of failure. Regardless, Western Digital has emerged as the undisputed leader, and the clear investment favorite.

What about those metrics?
While Western Digital has shown itself to be the better company over a period of 16 months, you might still consider investing in Seagate if there is a large disconnect in the valuations of both companies. However, Western Digital and Seagate trade at 12 and 10 times forward earnings, respectively, both of which are cheap.

Furthermore, Seagate's operating margin of 13.1% is 30 basis points better than Western Digital at 12.8%. However, in fiscal 2013, which ends in June for both companies, Seagate and Western Digital had operating margins of 14.5% and 8.2%, respectively. Hence, Western Digital has seen major improvements, while Seagate's profitability has fallen at nearly the same rate as its market share.

Foolish thoughts
With all things considered, investors should like Western Digital's opportunity to see both continued operating efficiencies and further market share gains. Meanwhile, there doesn't seem to be an end in sight for Seagate's fall in either category.

As a result, 12 times forward earnings looks like a bargain, and while the debate over which stock is better will continue, a closer look at both businesses will reveal that this question is not too difficult to answer.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Brian Nichols owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers