Small Drives May Pay Off Big for Western Digital

Just months after slashing its workforce and announcing a major restructuring effort, storage firm Western Digital(WDC Quote) may offer opportunities to investors thanks to its notebook drives.

Strong execution and the company's strength in 2.5-inch notebook drives make Western Digital an attractive proposition, according to Goldman Sachs analyst David Bailey, who added the firm to his Americas Buy list Wednesday.

"Market leadership in faster-growing segments should better position the company for a hard drive channel inventory snapback in the near term and rebound in overall demand in the intermediate term," he wrote in a research note.

The analyst explained that Western Digital emerged as the leader in the 2.5-inch notebook drives last year, gaining more than 10 points of market share, and is well positioned for the shift from 3.5-inch to 2.5-inch hard disk drives.

Another analyst also noted the strength of the notebook drive market.

"The recent indications we have received from numerous sources report shortages in notebook drives due to supply limitations, along with improved demand," wrote Avi Cohen, an analyst at Avian Securities, in a note released Wednesday. "(We) believe that the drive makers will exceed consensus expectations for the March quarter while providing improved outlooks into June."

The last few months have certainly been eventful for Western Digital, which competes with Hitachi(HIT Quote), Fujitsu and Seagate(STX Quote). Weakening demand forced the Lake Forest, Calif.-based firm to undertake a major restructuring effortlate last year, which involved cutting 2,500 jobs, or 5% of its workforce.

Investors have nonetheless been warming to the company's stock. Despite the tech sector's recent problems, Western Digital's shares have gained more than 60% in the last three months and are currently trading around $19.