A 'Down Cycle' Is Coming For Data Storage Stocks; A Bearish Analyst Is Not Sugar Coating His Reasons

  • Benchmark analyst Mark Miller reiterated a Sell on Western Digital Corp WDC and a $34 price target citing concerns over the strength and duration of the down cycle and weakening hyperscale.
  • At an investor conference, Western Digital management indicated preparing for a down cycle driven by demand. 
  • NAND bit supply is currently exceeding demand, likely to grow around 20%. 
  • Inventory adjustments are underway, he noted. Supply and demand affected the flash margins the most. 
  • Management hoped for better visibility by next quarter. Since the last earnings call, things have gotten somewhat more challenging, he observed. 
  • Consistent with Seagate Technology Holdings PLC's STX view, hyperscale customers became more cautious. 
  • Miller found Western Digital in a much stronger position to face a down cycle than the last, thanks to lower debt, greater access to capital, and a better mix. 
  • The firm is managing discretionary spending, slowing nodal transitions and capacity growth, he added.
  • Miller downgraded WDC to Sell from Hold with a $34 price target just a week ago, citing cloud customer concerns and Asain economic trends.
  • Miller noted that Seagate joined the likes of Micron Technology, Inc MU and Nvidia Corp (NASDAQ: NVDA) in lowering outlooks. The analyst also downgraded Seagate to Hold from Buy. 
  • Price Action: WDC shares closed higher by 2.32% at $42.41 on Thursday.
  • Photo via Wikimedia Commons
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