1. Western Digital: Growth and Transformation
LCDG Capital
Meixi Chen
Ada Del Rosso
Amir Ganaba
Richard Graham
Alyson Laux

2. Buy Highlights Successful Transformation of Business Model
Price - $38.18
Target - $47
Buy
Successful Transformation of Business Model
High Value Products dominate the Product Mix
Cost Structure as a Sustainable Competitive Advantage
Promising Growth in Emerging Markets
Position in the 2-yr cycle
$24
$47
$60
Analyst Estimate Range
Source: Yahoo Finance

3. Competitive Landscape
A Deeper Look at WDC…
Overview
Company History
Key Financials
Industry Positioning
Competitive Landscape
Competitive Landscape
New Technology increases product differentiation
Exports to emerging market promise revenue growth
Entering the Maturity Stage of the Life Cycle
Key Success Factors
Production Inputs make up majority of budget
Company History
History of adapting to new markets
Strategic use acquisitions and divestitures
Key Financials
52 Week Trading Range: $ $45.09 P/E Ratio: 8.24
Shares Outstanding: M EPS: 4.63
Market Cap: $8.85B Debt/Equity: 6.78
Positioning
Back to Basics Strategy
30% Market Share
Vertical Integration
Market Profile
4 quadrants – company history, financial metrics, SWOT, Stock price chart
Revenue grows at same pace as economy Company numbers stabilize; M&A stage Established technology & processes Total market acceptance of product & brand Rationalization of low margin products & brands
Exports are the leading market segment
KSFs - Marketing differentiated products , Use of automated production, Quick adoption of new technologies, User friendly products
Back to Basics Strategy - continued simple, strongly focused business strategy: making reliable hard drives with high efficiency and speed at a low price

4. New Products Consumer Electronics Branded Enterprise
Increasing Demand in Storage
Increase in WDC Products
Branded
Consumer Electronics
We believe that enterprise hard drives, consumer electronic and media drives, and branded products will grow in WDC’s product mix. Focusing on these higher value product lines will allow WDC to continue growth in the face of declining ASPs and demand for traditional HDDs for desktop and notebooks
Enterprise, Consumer Electronic, and Branded will Provide Strong Product Segment GrowthWe believe that these three segments will provide double digital revenue growth over the next five years. As more and more consumers need space to store their downloaded and recorded media at home, on the go, and at work, sales in these product segments will grow. These product lines will grow from being 24% of current sales to 38% of sales in 2015.
Enterprise
Source: Company Data and Revenue Projections

5. Capturing a Growing Market
New Markets
Geographic Mix
Asia Growth Rates
Source: Company Data and Revenue Projections
Capturing a Growing Market
PC shipments up 8.8% in 2010
Economy improvements
Growth of Wealth in Emerging Nations
Believe shipments to asia will be up an average of 10% per year for the next 5 years
Source: Company Data and Revenue Projections

6. Cost Structure Market Leader with Experience Economies of Scale
HDD component vertical integration
Responsive and Flexible Production Process
Hitachi acquisition proves thesis
successfully cope with the falling price of memory and highly cyclical demand. This ensures that WDC continues to provide stable cash flows to finance capital expenditures or acquisitions.
We project that both top cycle margins along with bottom cycle margins will improve when compared to the past.
Source: Company Data and Revenue Projections

7. Potential Risks Competitive Environment Market Cannibalization
Intensifying Competition in the industry
Average Selling Price uniformly decreasing
Varied competitors – Pureplay & Conglomerates
Market Cannibalization
Flash based Solid State Drives (SSDs)
Tablets
Cloud Computing Technologies

8. Competitive Environment
Western Digital Operates in a Highly Competitive Market
Major Competitors
Threat Level
Reasons
Established market leader; directly competes with WDC in all segments
Well Positioned in SSD market but lacks focus in HDD market
Manufacturer of media player; Data Storage service provider
Acquired Fujitsu’s HDD business and gained market share
Major player in the SSD market; but no representation in HDD Market
Pure play
Conglomerates
SSD
= High Threat
= Medium Threat
= Low Threat

9. Competitive Environment
Western Digital Operates in a Highly Competitive Market
Major Competitors
Threat Level
Reasons
Established market leader; directly competes with WDC in all segments
Well Positioned in SSD market but lacks focus in HDD market
Manufacturer of media player; Data Storage service provider
Acquired Fujitsu’s HDD business and gained market share
Major player in the SSD market; but no representation in HDD Market
Pure play
Conglomerates
Western Digital’s Advantage
Hard Drive Products are substitutable
Lower Average Selling Price
High Quality Reputation
Stable ROE over past years
Conclusion
Western Digital is Superior to Seagate and will be able to Capture Seagate’s Established Market Share in Traditional Segment
SSD
= High Threat
= Medium Threat
= Low Threat

10. Competitive Environment
Western Digital Operates in a Highly Competitive Market
Major Competitors
Threat Level
Reasons
Established market leader; directly competes with WDC in all segments
Well Positioned in SSD market but lacks focus in HDD market
Manufacturer of media player; Data Storage service provider
Acquired Fujitsu’s HDD business and gained market share
Major player in the SSD market; but no representation in HDD Market
Pure play
Conglomerates
WDC
VS.
Seagate
SSD
= High Threat
= Medium Threat
= Low Threat

11. Western Digital Operates in a Highly Competitive Market
Conglomerates
Western Digital Operates in a Highly Competitive Market
Major Competitors
Threat Level
Reasons
Established market leader; directly competes with WDC in all segments
Well Positioned in SSD market but lacks focus in HDD market
Manufacturer of media player; Data Storage service provider
Acquired Fujitsu’s HDD business and gained market share
Major player in the SSD market; but no representation in HDD Market
Pure play
Conglomerates
SSD
= High Threat
= Medium Threat
= Low Threat

12. Western Digital’s Advantage
Conglomerates
Western Digital Operates in a Highly Competitive Market
Major Competitors
Threat Level
Reasons
Established market leader; directly competes with WDC in all segments
Well Positioned in SSD market but lacks focus in HDD market
Manufacturer of media player; Data Storage service provider
Acquired Fujitsu’s HDD business and gained market share
Major player in the SSD market; but no representation in HDD Market
Pure play
Western Digital’s Advantage
Focus on the Storage Device Market
Low Average Selling Price
Higher Quality
Technological Innovation Ability
Conclusion
Western Digital provides higher quality products & faster technology update
WD will expand through winning their market shares
Conglomerates
SSD
= High Threat
= Medium Threat
= Low Threat

13. Market Cannibalization – SSDs
High Cost
High performance
Low Power Consumption
Small Physical Size
SSD is a high growth market with great potential; but it will not replace HDD in the next Decade

14. Market Cannibalization – SSDs
Take Away
Western Digital has already started manufacturing SSD lines
10 Years transition period will allow WD to leverage its brand strength and R&D to capture market share
High Cost
High performance
Low Power Consumption
Small Physical Size
SSD is a high growth market with great potential; but it will not replace HDD in the next Decade

15. Tablet & Cloud Computing
Tablet – Competition with HDD
However…
Virtualized Storage Service
May Erode the HDD Market
However…
HDD will still be used – demand from cloud service provider
iPAD – Content Consumption Device
Therefore,
HDD is still required to store information & data
Opens up opportunities for WD’s RAID Edition
WD’s NAS – provide personal cloud opportunity

16. Valuation Summary
Valuation balances depressed industry valuation with future growth potential
Comparables more accurately captures current market valuation
DCF more accurately captures potential growth
Gordon growth given limited weighting
Precedent transactions analysis not included due to lack of takeover potential

17. Comparable Companies LTM EBITDA LTM EBIT LTM Revenue 3.1x 20.8x 5.8x
$38.45
$51.14

19. Key Ratios Project stable margins over 5 year period
We project the firm will remain solvent
Project declining ROA and ROE as industry enters mature stage
Liquidity ratios suggest the firm is highly liquid

20. Western Digital: Growth and Transformation
LDGC Capital
Meixi Chen
Ada Del Rosso
Amir Ganaba
Richard Graham
Alyson Laux

21. Appendix Main Presentation Appendix Financials Future Outlook Risks
Key Highlights
Company Overview
Conclusion
Financials
Sensitivity Analysis
WACC
PV Interest Earned on Cash
Tax Treatment
EPS and PE Analysis
Capex
Key Ratios
Wall Street Consensus
Future Outlook
Risks
New Products
New Markets
Cost Structure
Overview
Competitor Analysis
Advantage over Seagate
ROE Comparison
Conglomerates
Advantage over Conglomerates
SSDs
SSD Takeaway
Tablet and Cloud Computing
Financial Summary
Strategic Insights
WDC History of Innovation
Seagate Technology
Potential Acquisition Effects
Hitachi
Valuation Summary
Comparable Companies
Discounted Cash Flow

22. Sensitivity Analysis
Sensitivity analysis shows roughly an average $25 price range for each DCF valuation methodology

23. WACC

24. PV Interest Earned on Cash
Effect of interest earned on cash balance small

25. Tax holiday until 2020 in Malaysia substantially improves WDC’s EPS
Tax Treatment
Tax holiday until 2020 in Malaysia substantially improves WDC’s EPS

26. CAPEX Forecast
Projected 2011 CAPEX consistent with management forecast
Projected CAPEX based on historical CAPEX as % of sales

27. EPS and P/E Analysis Average P/E: 8.9x 2006 2007 2008 2009 2010 2011E
2006
2007
2008
2009
2010
2011E
Price
$19.81
$19.35
$34.42
$26.36
$30.20
EPS
$1.84
$2.57
$3.92
$2.12
$6.06
$2.70
P/E
10.77x
7.53x
8.78x
12.43x
4.98x
11.19x
Average P/E: 8.9x

28. WDC has a History of Innovation
1: WDC Emerges from Bankruptcy
2: Begins Constructing own HDDS
3: Begins Multiple HDD models
4: Increases Product Variety
5: Enters Enterprise Market

29. Wall Street Consensus
Standard and Poor’s

30. Domination in the Enterprise Market
Seagate Technology
Strength
Weakness
Business Overview:
Seagate Technology (NASDAQ: STX)
designs, manufactures, markets and sells hard disk drives. Its products are used in enterprise applications, client computer applications and consumer electronics. Seagate sells its products to OEMs, retailers and distributors. The company is direct competitor with WD in all areas.
Industry leader
Replaceable products
Domination in the Enterprise Market
Higher ASP
High reputation
Unstable ROE
1 Year Stock Performance

31. Potential Acquisition Effects
Acquisition Currency
Cash on Hand: $3.1B
Characteristics of Potential Acquisition
Market Cap of $1-3B
Core Competencies:
Semiconductors
Electronic Components
Software Development UI
Dilution Effects
Cash on hand more than adequate to finance future potential acquisitions motivated by vertical integration

32. Total Market Size

33. Recent Hitachi Acquisition
Benefits
Combined HDD Shipments 48%
Push Revenues Ahead of Seagate
Introduce fast SSDs
Increase Enterprise Market Share from 11.4% to 46%
Enhanced R&D Capabilities
Better Cost Structure
Improved Competitive Dynamics
Weaknesses
Potential Market Share Decline
Increased Debt by $2.5 Billion
Benefits
Enhanced R&D Capabilities
Expansion of a rich product portfolio
Especially Enterprise Business
Better market coverage
Enhanced cost structure
Improved competitive dynamics
Weaknesses
Increased debt by $2.5Billion
Potential Market Share Decrease
$4.3 Billion=$3.5 Billion Cash + $750 Million Equity