The hard drive industry has boiled down to a pair of giants standing head, shoulders, and a full torso above the rest. Both of them reported earnings last week. The reports sent one stock 12% lower, while the other held steady.

How can Western Digital (NASDAQ:WDC) and Seagate Technology (NASDAQ:STX) work in the same industry with similar business models, yet reap dramatically different results in the same quarter?

Let's have a look at these two reports, side by side.

Close-up shot of a traditional hard drive with the top lid removed, exposing the magnetic platters.

Image source: Getty Images.

By the numbers

Seagate's sales fell 14% year over year in the first quarter of fiscal year 2020, landing at $2.58 billion. For Western Digital's first quarter of 2020, revenues fell 20% to $4.04 billion. Both of these top-line results were ahead of analyst expectations, as your average Wall Street firm had been looking for Seagate's revenues to stop near $2.58 billion and Western Digital's consensus estimates fell at $3.93 billion.

The bottom-line story kind of rhymes with the revenue readings. Seagate's adjusted earnings fell 39% to $1.03 per share, ahead of the Street's estimates at $1.00 per share. Western Digital's earnings crashed 89% lower, landing at $0.34 per share. That's still a surprise since the analyst consensus had called for $0.30 per share.

Market reactions

Investors reacted very differently to these two reports. The day after Seagate's first-quarter report, share prices temporarily dipped as much as 5.9% lower but the stock closed within a few pennies of the previous day's closing price. Western Digital took a 17% hit at the closing bell.

The two stocks had largely followed each others' ups and downs over the 52 weeks leading up to this earnings bonanza. Therefore, the six-month and full-year differences in investor gains are roughly equal to the direct hits each company took from last week's earnings reports.

The source of Western Digital's pain, compared to Seagate, was twofold.

  • Longtime Western Digital CEO Steve Milligan announced his retirement in a separate press release. Milligan will stay on until the company's board of directors has found a suitable replacement, and then plans to stay on as an advisor until September of next year.
  • Guidance for the second quarter pointed to earnings of roughly $0.55 per share, far short of Wall Street's consensus estimate of $0.75 per share. Western Digital is taking on more business than usual in the low-margin market for mobile storage, and the second quarter's bottom line will also be limited by start-up costs for a new flash memory manufacturing facility.

By contrast, Seagate had no management changes to report and its next-quarter guidance was right in line with analyst expectations. Moreover, the company boosted its dividend payouts by a modest 3%. Smooth sailing, no reason to panic, regardless of what's going on in Western Digital's backyard.

What's next?

Fellow Fool Leo Sun sees a turnaround bubbling just under Western Digital's turbulent surface. The company is edging into a stable revenue trend that should translate into solid growth over the next few quarters. Steve Milligan's departure may be surprising, but it also looks like an orderly exit that should leave the company in capable hands after a relatively smooth handoff. And the flash memory segment that was a bottom-line drag in this quarter is shaping up to be a serious growth engine for 2020 and beyond -- an advantage that Seagate can't match.

Leo sees a buying opportunity in Western Digital's sharp sell-off, and I concur. The head start that Western Digital has over Seagate in flash-based storage is enough to keep me interested, and those turnaround signs really are crystal clear. Seagate isn't necessarily a bad buy right now, but Western Digital is a better one.