What: Shares of hard disk and solid state drive maker Western Digital (WDC 2.77%) got crushed by 19% during the month of June, according to S&P Capital IQ data. The global PC market's growth prospects remain lackluster, which is weighing on the stock as the company is highly dependent on PC sales.
So what: To kick off June, market researcher IDC said that the PC market would contract again this year for the fourth consecutive time. Unit volumes are expected to fall by over 6%, but may stabilize in 2016. A few weeks later, IDC followed up with its estimates on first-quarter PC shipments, and the gloomy news there was that worldwide PC units fell by 12% year over year to 29.5 million units. It didn't help that this came a day after JPMorgan Chase downgraded Western Digital from "overweight" to "neutral" while trimming its price target from $105 to $92.
Now what: Western Digital shares have had a very nice run over the past couple of years, so it's not too surprising for the market to give some back on fears that the PC market is stagnating. Beyond unit volumes, Western Digital should enjoy some price increases in the near future as storage capacities continue to rise and enterprise hard disk shipments become a larger portion of the product mix.
On the last earnings conference call, management also expressed confidence that the solid state business will continue to improve in profitability throughout the year. Trading at 12 times earnings, Western Digital seems modestly priced given the structural challenges that it faces in the PC market.
