Hard drive maker Western Digital (WDC - Get Report) is one of the biggest computer storage makers in the world, with more than 40% of the hard drive market today. The firm's drives are found in everything from consumer PCs and standalone external drives to cars and enterprise servers. That scale gives WDC some big advantages in a hot storage market.
But hard drives are going the way of the dodo -- eventually. Solid state drives offer huge speed, shock protection and size benefits, making them ideal for high-throughput enterprise jobs and high-volume mobile device applications. The two detractors for solid state are cost and supply constraints, but as costs come down and manufacturing capacity increases, flash drives could make their way to bargain-priced components. To counter that challenge, WDC has been investing in its SSD portfolio, leveraging its fat customer rolodex to sell its flash drives to customers. The firm has ample time to scale up its SSD capabilities by the time hard disk drives lose their high-return luster.
For WDC investors, it all comes down to the cash. Right now, the firm has more than $2.3 billion in net cash on its balance sheet, a level that effectively pays for 11.4% of the firm's market capitalization. That gives Western Digital plenty of dry powder to transition to SSDs -- and to keep hiking its 1.4% dividend yield.