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Is Seagate Fall a Blip or a Trend?

Stocks in this article: STX WDC AAPL

For the December quarter Western Digital also got 34% of its revenue from non-PC systems, and its chip-based Enterprise Solid State drive business grew from $106 million in the third quarter to $155 million in the fourth.

The question for investors is whether this is a blip or a trend. Western Digital's consumer products, such as the My Cloud, are not as physically attractive as Seagate's consumer line, but they can deliver 4 terabytes of network-attached storage for just $220 and automated back-up accessible to the whole family via WiFi.

Seagate's products are prettier, but whether they will sell well is speculative. Both companies can continue to extract money from cloud providers, through subsystems, for as long as the cloud build-out continues.

So most analysts will likely see this Seagate quarter as a blip and a buying opportunity. At its present price, Seagate sports a yield of a bit less than 3%, twice what Western Digital offers. And earnings that flow to shareholders, not growth, are the key metric for this group.

There remains one cloud on Seagate's horizon. Backblaze, a cloud storage company, lately has begun publishing its own reliability statistics, which indicate a far higher failure rate for Seagate gear than for its rivals, Western Digital and Japan's Hitachi.

Backblaze writes that the Seagate Barracuda Green 1.5 terabyte drives, in particular, are "dropping like flies." Many were warrantee replacements, with some usage on them when acquired. "The good pricing" along with "consistent, but not great performance is why we have a lot of them," the company concluded.

If Xyratex's testing gear can solve those quality control problems I would stop worrying about Seagate. But I want evidence before putting cash to work with the company

At the time of publication the author owned shares of Apple.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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