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.

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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.

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