Seagate Left Open in Rush to Flash

First, hard drives remain considerably cheaper than flash memory. A 100-GB hard drive at a retailer such as Best Buy(BBY Quote) can be had for $100. The same $100 used to buy a flash memory chip, however, would not be enough to secure even a 2-GB flash card.

Flash tends to prevail in the court of public opinion because it is lighter, and therefore favored for portable electronic devices. While this is true, there are mini-hard drives on the market as well, and to find one you have to look no further than the original iPods. While relative behemoths in size relative to the 2-Gig and 4-Gig nano, these original iPods have 20 GB of storage and sell for just a $50 premium to the nano. That's not much of a difference in price considering the disparity in capacity, and especially when you consider that the nano is only 4.5 ounces lighter than the 20-Gig version.

Second, let's not forget that hard drives are the standard for personal computing. If you were to go out and purchase an equivalent amount of flash memory to an 80-GB hard drive, you would be in the hole for well over $1,000. But you can have an 80-GB laptop using a hard drive complete with software for under $1,000.

Third, while size matters in consumer electronics, it hardly matters in terms of backing up work in people's home offices. There is no cheaper method of backup storage than hard drives in people's home. For $200, the average family of four could buy enough hard-drive storage to save many years worth of files and applications.

Lastly, hard drives are now being installed in televisions to serve as embedded digital video recorders. Wednesday morning, TV giant LG Electronics announced that its new HD Plasma TV will come with a built-in 160-GB Seagate hard drive that has most of the functionality of a TiVo. Until TVs become two-dimensional, there will be room for a hard drive, and the price differential makes hard drives the compelling option for TV manufacturers and consumers.

From a risk/reward standpoint, I think Seagate is the most attractive hard-drive play to benefit from the market's overly pessimistic view of hard drives. Western Digital and Maxtor (MXO Quote) come in second and third in my view, with Western Digital shares already having made a nice move in the past few quarter, and Maxtor struggling to deliver innovative products and a profit.