The declining PC market has taken a toll on hard-drive makers such as Seagate Technology (NASDAQ:STX) and Western Digital (NASDAQ:WDC). As a result, both companies have been trying to diversify into the cloud, data centers, and mobile devices to find new revenue opportunities. This transition, however, isn't proving to be easy. When Seagate released its fourth-quarter results, it posted yet another year-over-year decline in revenue and earnings.

Seagate has also lost market share to rival Western Digital in the storage industry, and this has added to its troubles. However, Seagate managed to satisfy consensus estimates when it released results, and its outlook was at par with expectations. The company has been taking steps to improve its long-term prospects through its new product lines and technology, and it seems to be making good progress.

Cloud is where the growth is
Seagate has built a portfolio of cloud storage solutions. Its cloud systems and solutions segment is driven by three product lines -- OneStor systems, ClusterStor and Evolve. The good thing is that the company saw good demand in this segment in the previous quarter, with revenue exceeding its internal target. Seagate singled out ClusterStor, its high performance computing business, as the outstanding performer with 210% revenue growth in the previous quarter. 

ClusterStor is gaining traction in the oil and gas and health care verticals, along with the government sector for big data deployment. In fact, two of the Fortune Five oil and gas corporations are using this Seagate product in exploration and geospatial analytics. The company claims to have equipped ClusterStor with the world's fastest data analytics engine, which has enabled it to find adoption in data-intensive applications. 

Meanwhile, the Evolve product line turned in a solid performance, landing five deals over the half-million-dollar-mark. Looking ahead, Seagate expects revenue from this product to increase further, driven by a higher average selling price and stronger demand.

Two key acquisitions
Seagate had made a smart move earlier this year by acquiring Xyratex, and it seems to be reaping the benefits now. The acquisition has allowed it to bolster its high-performance computing business and gain more expertise in cloud-based storage technology, thereby allowing it to post strong results in the cloud business.

Now, Seagate is on the verge of closing another acquisition. The company announced in May that it will acquire Avago Technologies' SSD controller and PCIe assets. This is another good move as the solid-state drive (SSD) industry is growing at a fast pace. According to IHS iSuppli, global SSD shipments are expected to increase to 227 million units in 2017 in PCs, from only 31 million units in 2012. SSDs will end up accounting for a third of the storage market by 2017, so it is important for Seagate to continue building its technology portfolio in this product line.

Better PC prospects
The company also expects better demand in the second half of the year. In fact, Seagate is seeing one of its best demand trends in four years, with July already being better-than-normal. The company is counting on strength in the notebook market, driven by product refreshes. This isn't surprising, as chip giant Intel (NASDAQ:INTC) had stated the same when it released its second-quarter results. 

Intel raised its revenue forecast under the belief that the worst is over for the PC industry. The company now expects its revenue to grow 5% this fiscal year, a solid improvement over the earlier forecast of flat sales. Intel cites the PC refresh cycle, which was triggered after Microsoft ended support for Windows XP, and  increasing demand from corporate customers as the reason behind the improved prospects. 

Being a hard-drive supplier, Seagate's prospects are directly tied to the PC industry, so Intel's commentary is good news for the company. Additionally, Seagate has prepared a new line of products to tap the PC market. For instance, its 7200 RPM notebook product has gained qualification at all major original equipment manufacturers, and a production ramp is on the way. Shipments of Seagate hybrid drives are also improving, with the top three global PC makers offering it in their main product lines. 

The Western Digital threat
Seagate, however, will face stiff competition from Western Digital in a number of areas, including hybrid drives. Western Digital introduced its first hybrid drive last year, partnering with SanDisk to develop the technology. At the same time, Western Digital beefed up its enterprise segment last year, ahead of Seagate. Western Digital had acquired Virident Systems and sTec in 2013 for a total of around $1 billion.  

Virident brought PCIe expertise to Western Digital, while sTec came with over 100 SSD-related patents, according to AnandTech. Additionally, Western Digital's fundamentals are better than Seagate. As such, it is a tough fight ahead for Seagate, and it will have to keep introducing innovative products in order to gain lost market share.

The bottom line
Seagate's recent results indicate that the company is on track to get better. Its investments in cloud technologies and the increasing adoption of its products by customers should result in long-term improvements. Moreover, at a trailing P/E of just 13 and a forward P/E of less than 10, Seagate is very cheap when compared to the industry average, making it a good value play.