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From: Sam10/5/2017 10:55:35 AM
   of 2787
 

Western Digital: Hard Times Ahead -- Barron's Blog
DOW JONES & COMPANY, INC. 10:52 AM ET 10/5/2017

Symbol Last Price Change
83.1778 -1.1722 (-1.39%)
2.76 0 (0%)
34.125 +0.145 (+0.43%)
QUOTES AS OF 10:52:34 AM ET 10/05/2017


Shares of Western Digital(WDC) are in retreat today, falling after Deutsche Bank downgraded the chip maker's stock from a Buy to a Hold, arguing that the drama playing out over Toshiba's(TOSBF) ( 6502.Japan/ TOSYY) sale of it memory business to a consortium warrant "a more cautious view on the stock."

How cautious? Deutsche's Sherri Scribner cut her price target from $105 to $80, which suggests a 3% downside for the U.S.-listed shares.

Scribner had been bullish on the stock for the last few years due to cost cutting and the company's move to diversify into the NAND flash drive market. But now, she argues that "cost cutting will take a back seat to the dynamics playing out in the NAND market."

The well-publicized drama related to the sale of Toshiba's(TOSBF) memory business has created uncertainty around the WDC/ Toshiba(TOSBF) joint venture (JV) and the ongoing relationship between the two companies for NAND development. In addition, while NAND has been the driver of recent upside to results, we believe NAND market tightness will start to ease in 2018, suggesting we are nearing the peak in this NAND cycle. Given uncertainty around the Toshiba(TOSBF) relationship and our view that the NAND market is nearing a peak, we would advise investors to take a more cautious, wait-and-see approach.

Shares of Western Digital(WDC) are down 1.4% to $83.25 in recent market action.

Last month, Toshiba(TOSBF) announced a $17.8 billion deal to sell its flash memory chip business to a consortium led by Bain Capital. Western Digital(WDC), which relies on joint ventures with Toshiba(TOSBF) for its NAND chip supply, had been in talks with Toshiba(TOSBF) regarding a possible bid, and is now pursuing arbitration.

A big worry about the sale is that the consortium includes Western Digital's(WDC) rival, Seagate Technology(STX) .

A decision in the arbitration case is expected next year. Which side will prevail in the arbitration is hard to gauge, says Scribner. But she argues that Western Digital's(WDC) relationship with Toshiba(TOSBF) has been damaged, and worries about the company's future ability to procure NAND chips.

Meanwhile, NAND prices may be nearing a peak, Scribner says.

These dynamics suggest to us that WDC;s recent pattern of outperformance will likely near an end in the next one to two quarters and we see fewer opportunities for WDC to surprise to the upside as we move into C1H-18.

Not the first analysts to grow more cautious on Western Digital(WDC). Earlier this week, Baird's Tristan Gerra lowered the stock to Neutral and cut his price target to $93, describing " nuclear fallout potential" for the chip maker.

More at Barron's Tech Trader Daily blog, barrons.com

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To: Sam who wrote (2584)10/5/2017 11:42:51 AM
From: Art Bechhoefer
   of 2787
 
The latest comments on WDC by investment firms display a wide difference between decisions reached through technical analysis and decisions based on fundamentals.

The Deutsche Bank comments suggest a weakening of demand growth in 2018, which, together with the uncertainties over the sale of the Toshiba portion of the joint venture, result in a target reduction from $105 to $80. Is that reasonable? If one relies on technical analysis alone, it probably is, because TA at least can predict moderately well any short term changes, especially changes in price over a limited period of perhaps two or three months at the most.

But if investors consider the fundamentals, the picture remains quite different. The purported weakening of NAND flash demand in 2018, even if it occurs, won't affect earnings per share for at least six months, and maybe even longer than that. If the Toshiba sale to a consortium that includes Hynix, a major competitor, any damage that might occur from Hynix being able to access SanDisk proprietary technology would likely not affect Hynix or overall NAND flash prices for another six months or longer.

The participation of Apple in the consortium raises another issue. Would Apple use its financial interest in the consortium to force down prices of flash memory sold to Apple for its smartphones and computers? Apple has a habit of playing suppliers off against each other. With some ownership by Apple in the Toshiba portion of the joint venture, they could force prices favorable to Apple and avoid paying higher prices that otherwise might be charged by WDC, Micron, Samsung, and Hynix as well. I would think more than WDC would have some interest in the ability of Apple to set flash memory prices in a manner that is disadvantageous to all suppliers other than what Apple controls. Price fixing, or more properly, the ability to fix prices brings up issues of anticompetitive business practices, in addition to the current issue of whether WDC in fact has a contractual right to approve a change in ownership of the Toshiba portion of the JV.

Seems to me that WDC, if they are not totally stupid or hard headed, can work a deal that would be beneficial to its shareholders. If not, then they need new management, now. No matter how these legal issues are resolved, I think it's unlikely that there would be any adverse effect on WDC earnings for at least six months, if not more. And at present, given the near term estimates of earnings growth, WDC does not appear to be overpriced at all. Thus, if one relies on fundamentals, the shares are reasonably priced at current levels.

Some investors, however, tend to pursue strategies involving trading on short term movements, up or down. Their transactions undoubtedly please the firms that derive commissions on the transactions. But can this behavior be termed investing, or is it more akin to gambling? Warren Buffett many years ago had some sage advice for those who like to invest only for short term gains. Any gains received in less than a year, and particularly those received in less than a month, he said, should be taxed at least 90%. That would reduce volatility and allow the resulting market price of the shares to reflect the intrinsic value of the investment, rather than momentary sentiment. For the average investor, Buffett's advice is particularly important because it effectively warns individuals that they have little chance of beating the overall market through short term trading. There will always be larger investors or firms that can trade in and out long before the individual can act, thereby increasing the risks to individuals from not being able to obtain the best sale or buy price.

That's one reason why long term investing (Buffett believes that you should buy stocks with the intent of holding them forever) is surely a better strategy for more investors. I think this strategy holds true for WDC as well, with the assumption that long term buying and holding is warranted only if the fundamentals remain strong. Buffett has never sold a dime's worth of Berkshire Hathaway's Coca Cola stock, nor has he sold any GEICO insurance stock. These holdings go back more than 30 years. It's time for WDC investors to think accordingly.

Art

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To: Art Bechhoefer who wrote (2585)10/5/2017 11:51:23 AM
From: SiliconAlley
   of 2787
 
Thus, if one relies on fundamentals, the shares are reasonably priced at current levels.

Interesting take since you said overpriced in the 30's, drowning in debt, etc etc. At no time have you ever recommended buying the stock, but have continued with your various warnings and academic dissertations. Now, near the top, you find it reasonably priced. Yet somehow you think you've always been right.

Your track record here just hasn't been very good, and I think is further confirmation of the downturn ahead. Those who followed my advice 18 months ago, can follow it now and lock in a more than 100% profit.

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To: Art Bechhoefer who wrote (541)10/5/2017 12:17:44 PM
From: SiliconAlley
   of 2787
 
The present price near $46 should be sustainable and, if economic conditions improve, could allow WDC shares to recover to the mid $50s, perhaps in the next six months. I doubt very much that some analyst predictions of price gains to $60 or more will materialize even in a year.

Golden Oldies, Art Bechhoefer, 8/1/2016

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From: bigchad10/5/2017 12:28:28 PM
   of 2787
 
Usually when stocks go up on an downgrade that means they are done going down. Bain seems to acknowledge that they have to play ball with WDC. All will be well.......eventually.

SA give Art a break. He was seriously doubting the 60s because he was looking for the 90s. I wish I got my dividend today......

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To: bigchad who wrote (2588)10/5/2017 12:32:38 PM
From: SiliconAlley
   of 2787
 
Usually when stocks go up on an downgrade that means they are done going down.

Unfortunately, there are many more downgrades to come. Many.

All will be well.......eventually.

Wishful thinking, when it comes to investing, has a way of not ending well.

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To: SiliconAlley who wrote (2589)10/5/2017 12:57:31 PM
From: bigchad
   of 2787
 
Many more downgrades? Maybe so but I still think its going up. Wishful thinking? Like $500....

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To: bigchad who wrote (2590)10/5/2017 1:02:50 PM
From: SiliconAlley
   of 2787
 
$500 was not wishful thinking. It was a reasonable long term target based on continuity of the business. Things have changed. You have a huge unrealized gain in place, based on listening to my calls, and appear to be upset that I now say the landscape is changed. Be happy for the gains, and not upset that I have changed direction.

Should things change, I will be back in. But I know better than to risk substantial gains on what is at this moment a roll of the dice. Yes, of course Bain wants to work with Western Digital, but it is not in Western Digital's interest to do so. Ignore my advice if you wish, but know that I have provided it.

You asked me privately last night what you should do, and I suggested you sell. I am truly sorry that you are not happy with my advice.

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To: SiliconAlley who wrote (2587)10/5/2017 1:05:24 PM
From: Unwelcomeguest
1 Recommendation   of 2787
 
Golden Oldies...

Silicon Alley

97 tomorrow.


Message 31239391


August 27th, 2017


UWG

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To: bigchad who wrote (2590)10/5/2017 1:09:13 PM
From: Art Bechhoefer
   of 2787
 
It helps to look at the fundamentals. They justify neither a price of $500 nor as low a price as $80. In fact, one might consider what might occur if WDC DOESN'T prevail at all. Earnings will continue to rise because of faster than expected growth in demand, especially for enterprise and cloud servers. And WDC will not be saddled with additional debt at a time when interest rates are beginning to rise. The issue that WDC can capitalize on, whether it owns or controls the rest of the joint venture, or whether that roughly half portion goes to a competitor, is the potential loss of its proprietary technology, most of which was developed by SanDisk. That issue may have to be resolved in court, and the threat to anyone buying Toshiba's half should be enough to make a generous deal with WDC more than just a wish.

Art

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