The storage drive industry is a duopoly with Western Digital (NASDAQ:WDC) and Seagate Technology (NASDAQ:STX) leading the way. Both companies were on an equal footing last year with a 43% share of the hard-disk drive, or HDD market. However, Western Digital has scooted ahead with a 45% share, while Seagate lags behind with 40% of the market. And based on a few simple assumptions, I think this gap could widen further. 

Difference in performance
The PC market is on the decline, so both Western Digital and Seagate are expected to see weakness in their business. There was a time when both companies were reporting terrific growth in their financials as the floods in Thailand restricted supply. But now, both storage companies reported a decline in earnings and revenue in their respective quarters.

However, it seems Western Digital is the one that's doing better in a weak PC environment. In its last-reported third quarter, Western Digital's revenue was down just 1.6% year over year, while earnings dropped 4%. In comparison, Seagate's revenue dropped 3.4% and earnings fell 5%. 

Difference in fundamentals
A closer look at the two balance sheets also shows Western Digital's superiority. The company has more cash and lower debt, with figures of $4.9 billion and $2.5 billion, respectively. So, Western Digital's debt is almost half of the amount of cash. The story is the opposite for Seagate, which has debt of $3.5 billion and cash of $2.3 billion. In addition, Western Digital's operating cash flow for the last year stands at $2.8 billion, better than Seagate's $2.4 billion. 

Thus, Western Digital has a stronger balance sheet and generates more cash. Also, a lower amount of debt means that it has to bear lower interest expenses, which is why the company can easily hike its dividend. The company currently yields 1.90% with a payout ratio of 25%. Meanwhile, Seagate has a higher dividend yield of 3.30%, but it also has a higher payout ratio of 36%. So, Western Digital looks the more likely of the two to increase the dividend at a faster rate since it is in a better financial position.

Enterprise business
Western Digital is aggressively focusing on tapping the enterprise market. Its enterprise-class solid-state drives, or SSDs, are witnessing strong demand from customers. So, the company is focused on expanding its range of enterprise SSD products -- such as SAS, PCIe, and SATA -- with different form factors and capacities.

Western Digital's 6 TB-helium filled drive is being shipped in volumes to several original equipment manufacturers across the globe. On the other hand, Seagate's 6TB enterprise drive was introduced in the last quarter. It's expected to gain momentum in the second half of the year, when enterprise cloud customers adopt higher-density drives. 

However, Seagate has fallen behind Western Digital in this market, as the latter is already seeing strong shipments of its own 6TB drive. Moreover, earlier this year Seagate announced that it would buy data-storage company Xyratex for $374 million to boost its enterprise data storage systems business. Also, Seagate has just announced the acquisition of the flash components division of LSI from Avago Technologies for $450 million, to tap the growing flash-storage market. 

Western Digital made such moves last year when it acquired Virident Systems and sTec, for a total of $1 billion, to bolster its enterprise division and flash storage hardware business. The Virident acquisition should help Western Digital tap the PCIe market -- which is growing at an annual rate of 31% and is expected to be worth $2.4 billion by 2016. 

In addition, the sTec acquisition has brought more than 100 SSD patents to Western Digital, according to AnandTech. As such, it seems that Western Digital has maintained the lead in enterprise storage and is a key reason why it could outperform Seagate going forward.

The bottom line
Western Digital looks like a better bet than Seagate for a number of reasons. It is financially more sound, it gained market share, and has made an early move into enterprise, all of which sets it apart from Seagate.