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Date updated:05-12-2007

From Barron's 5-14-07

Why Disk-Drive Makers Have Years to Run.


"Reports of the disk-drive business' demise have been greatly exaggerated. Since the beginning of the year, the No. 1 and No. 2 drive makers -- Seagate Technology (ticker: STX) and Western Digital (WDC) -- have seen their stocks decline 16% and 11% respectively, on worries that personal-computer sales are slowing substantially. Some analysts have even suggested that the newer kind of computer chip known as "flash" memory could completely replace drives in personal computers -- and put Western and Seagate out of business. But PC sales are doing just fine, and flash -- in great part owing to its cost -- is not going to replace disk drives globally for years to come."

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• 
• STX
  Seagate Technolog
• $18.18
• +0.89%
• $18.08

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"Seagate, which sells about a third of the industry's units, is generally regarded by investors and analysts as the technology leader. The global PC market is "healthy" and will likely grow at a stable 11.1% this year over last, says IDC's director of PC research, Loren Loverde. Global PC sales rose a better-than-expected 10.1% in the first quarter, faster than the 8.5% forecast, according to PC analyst Mikako Kitagawa with research firm Gartner."

People owning STX also tend to own: AHMAIZALBAMPAVTAXCABBI

TheStreet.com Rating: B- What is this?

• 
• WDC
  Western Digital C
• $39.65
• +0.56%
• $39.79

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"Once investors come to appreciate these facts, Western Digital shares could appreciate another 20% or more from a recent price of $18.10 per share. Western is cheaper than Seagate by a wide margin, trading at a two-year-low price-to-earnings multiple of about 9.4 times the next four quarters' estimated profit per share -- below its five-year median of 11.6 times, while Seagate is near its median of 12.2 times. "Western has an attractively valued stock for a company that is one of the premier players in a market that's set to grow at least 10% a year for several years," says Citigroup analyst Paul Mansky, referring to the expected ramp-up in disk-drive unit sales."

People owning WDC also tend to own: MIIBHICVXSBLVLOFMDPWEI

TheStreet.com Rating: B+ What is this?