(By Balaseshan) Brean Capital analyst Ananda Baruah believes drives for tablets are coming, shipping perhaps in the second half of 2013, and definitely by the first half of 2014.
"If they get meaningful traction within tablets, a very big leg of the bear thesis will be punctured. While we continue to like both Western Digital Corp. (NASDAQ: WDC) and Seagate Technology Plc (NASDAQ: STX), if tablet drives catch on, both stocks would see meaningful appreciation driven by both revenue and multiple expansion," said Baruah.
If recently talked about hard drives for tablets become an adopted reality, one of the two primary bear case legs will be weakened (the other one being pricing) – this would add much more punch to the analyst's "Buy" thesis on WDC and STX and could contribute to multiple expansion, as meaningful success would be viewed as the ultimate in market protection, the analyst said.
Baruah said Google Inc.'s (NASDAQ: GOOG) Android based ODMs have genuine enthusiasm for them now that they have 5mm specs, with Apple Inc. (NASDAQ: AAPL) currently less enthusiastic.
While it's true that Apple has strong legacy DNA against using HDDs, the tablet drive use case is around capacity and the desire from some users to have larger capacity tablets, the analyst said. Apple's resistance has traditionally been for performance reasons dating back to the iPod's (which for a very short period of time shipped with 1 in HDDs).
Additionally, the analyst's work suggests that the 320GB / 500GB 7mm / 5mm tablets coming mid-year actually have 32GB / 64GB options, so the consumers could get similar to the same flash performance component.
On pricing, Baruah believes that 500GB drives will be in the $70 - $85 range to start, so perhaps $15 - $30 higher than 500GB today, but in line with 64GB SSD. He believes that 5mm will be at the higher end of that range.
The analyst believes that STX believes that once they start shipping to volume (in the millions), they can work the cost down close to where 500GB HDD is today. So costs and ASPs actually line up pretty well.
Volume timing feels a bit like a moving target, although Baruah believes that STX believes that they can be shipping in the "millions" of units in the second half of 2013.
The analyst believes at this point volumes really are TBD (whether in the second half of 2013 or calendar 2014), as the Android tablet vendors have really only been meaningfully looking at the drives for perhaps a few months.
STX is trading down 4.48% at $32.65 on Wednesday, while WDC trades down 3.66% at $46.79.