Western Digital believes that storage demands will drop through the first half of 2013, although it claimed this week that its enterprise products continue to sell well. The company has also acquired Arkeia, a provider of de-duplication software, which WD will presumably add to its storage solutions.
WD isn’t adverse to acquiring new properties: in March 2012, it acquired Hitachi Global Storage Technology with restrictions. That acquisition placed WD on par with Seagate as the world’s largest disk-drive supplier. Despite macroeconomic uncertainty buffeting the storage industry as a whole, WD reported sales of 59.2 million units this quarter, more than double the 28.5 million drives it moved a year ago; net income more than doubled to $335 million, while sales topped $3.8 billion.
WD’s year-over-year growth was helped by a catastrophic flood that struck Thailand in the fall of 2011, which dramatically impacted the manufacture of components WD used to build its disk drives. That had an oddly positive effect on WD’s bottom line: drive production suffered, leading to an increase in the price of drives, which helped boost profits.
But now WD has more manufacturing capacity than the market demands. For the 2013 calendar year, the company estimates the total market demand at roughly 550 million units, WD CFO Wolfgang Nicki told media and analysts during the company’s recent earnings call: “That’s a very, very significant reduction in volume.” (Call transcript courtesy of Seeking Alpha.)
“We obviously have more capacity than what we’re producing because we’re throttling it to what we see as demand,” added Stephen Milligan, WD’s newly appointed CEO. “But we are taking actions to reset our capacity potential to a more appropriate level given what we view the secular changes in terms of the overall demand profile for the industry, not that we don’t expect to see growth but not at the same rates than what we’ve historically done.”
The primary area where WD is seeing growth, Milligan added, is in the enterprise, a traditionally stable market. SSDs are strong in that segment; WD is also banking on its new helium-filled disk drive, which can spin with less resistance.
WD announced this week that it bought Arkeia to facilitate backups to either the cloud or offsite tape repositories. The company did not release a value for the transaction, described as a merger. Although it also markets storage appliances, Arkeia’s chief asset is its Arkeia Network Backup software, which the company claims speeds hybrid-cloud backup by reducing the bandwidth necessary to replicate backup sets over wide area networks. In effect, that means SMBs and other organizations can move large backup sets on physical media and small backup sets over the network.