Investing in the data storage market can be tricky, and requires an understanding of the growing rift between platter-based hard drives (HDDs) and new solid state drives (SSDs).

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HDDs were once standard in the PC market, but market growth has slowed over the past four years due to the rise of tablets and ultrabooks, which require smaller SSDs for thinner frames. Worldwide HDD shipments fell annually between 2011 and 2013, but recovered 2.2% in 2014, as growth in the cloud/enterprise market offset losses in laptops and tablets.

The SSD market is much smaller than the HDD one, but it's growing rapidly. Back in 2012, over 15 times as many HDDs were shipped worldwide as SSDs. Last year, HDD shipments were only about five times higher. SSD makers, looking for growth beyond the slowing tablet market, are now looking toward the enterprise market. However, HDDs still have a price advantage in that market, since they still cost about half the price of an SSD with the same storage capacity.

Now that we understand those trends, let's discuss two of the top "pure play" stocks in HDDs and SSDs -- Western Digital (NASDAQ:WDC) and SanDisk (UNKNOWN:SNDK.DL).

Western Digital
Western Digital controlled 44% of the HDD market last year, compared to 41% for Seagate and 16% for Toshiba. HDDs generate the majority of Western Digital's revenue. According to research firm Gartner, SSD sales only accounted for $500 million, or 3%, of Western Digital's 2013 sales. Due to ongoing concerns about SSDs displacing traditional HDDs, shares of both WD and Seagate have fallen 26% since the beginning of the year.

However, Western Digital has beefed up its SSD portfolio with several acquisitions, including SSD manufacturer sTec, enterprise flash storage company Virident Systems, and storage optimization software developer Velobit. It also acquired flash storage array maker Skyera last December. Thanks to those investments, Western Digital's enterprise SSD (data center) revenues more than doubled annually to $244 million last quarter, indicating that the business could soon generate over $1 billion in annual revenues.

Western Digital is still strongly dependent on the PC market, which experienced a 9.5% annual decline in the second quarter, according to Gartner. During Western Digital's fourth quarter earnings (reported at the end of July), revenues fell nearly 13% annually to $3.19 billion, missing the company's own prior guidance for $3.3 billion to $3.4 billion. Adjusted non-GAAP EPS declined 24% to $1.51, but topped estimates by five cents.

Those numbers looked weak, but analysts were optimistic regarding WD's eventual integration of Hitachi's hard drive business. WD purchased the unit two years ago, but the full integration of manufacturing and supply operations has been delayed by MOFCOM (the Ministry of Commerce of the People's Republic of China) due to antitrust concerns. Brean Capital analyst Amanda Baruah, who has a $150 target price on the stock, expects an approval to contribute $60 to WD's stock price.

Sandisk is the third largest manufacturer of flash memory in the world after Samsung and Toshiba. But unlike those massive companies, Sandisk is a "pure play" on the flash storage and SSD market.

Sandisk's SSD business is its fastest growing division. The unit's annual revenues soared from $440 million in 2012 to $1.9 billion in 2014. The unit's contribution to Sandisk's top line soared from 3% in 2011 to 29% in 2014. However, that percentage is expected to remain the same this year, due to the loss of a "major customer" in the client SSD (notebooks, tablets, smartphones) market in January -- widely believed to be Apple, its top customer.

Sandisk also continues to faces intense competition from market giants like Samsung, expanding HDD makers like Western Digital, and flash memory rivals like Micron. All that pressure caused Sandisk to lower its revenue guidance for fiscal 2015, causing its stock to plunge 40% since the beginning of the year.

However, Sandisk bounced back slightly in late July after it beat analyst estimates on both revenue and earnings with lower-than-expected declines for its second quarter. Looking ahead, Sandisk expects its acquisition of SSD maker Fusion-io, which closed last June, to strengthen its enterprise SSD portfolio and become earnings accretive this year. That growth could offset its declines in the client SSD market.

A contrarian view
The market clearly doesn't love Western Digital and Sandisk due to ongoing concerns about disruption and competition. However, both companies are rolling with the punches -- WD is expanding its SSD portfolio, and Sandisk is using enterprise SSDs to offset losses in client SSDs.

WD is also fairly cheap, at 13 times earnings, compared to the industry average of 19 for data storage devices. Sandisk has a higher P/E of 23, but that's significantly lower than its P/E of 32.5 from early 2013. Both stocks could recover in the future, but investors should do their homework and fully understand the data storage market before buying any shares.